Document: 440 U.S. 715 99 S.Ct. 1448 59 L.Ed.2d 711 UNITED STATES, Petitioner, 77-1359v.KIMBELL FOODS, INC., et al. 77-1644 v. Zac A. CRITTENDEN, Jr. d b a Crittenden Tractor Company. Nos. 77-1359, 77-1644. Argued Jan. 8, 1979. Decided April 2, Syllabus These cases present the question whether contractual liens arising from certain federal loan programs take precedence over private liens, absent statute that sets priorities. Resolution of this requires determination or state law governs conflicting claims and, if applies, uniform priority rule should be fashioned commercial incorporated as decision. In No. United States' lien secures guaranteed by Small Business Administration (SBA) under Act, which generally does not specify rules to govern SBA security interests. The respondent Kimbell Foods, Inc. (Kimbell), arose agreements were executed before guarantee and secured advances made after guarantee. Both interests, covered same collateral, perfected pursuant Texas' Uniform Commercial Code. District Court found Government's was superior Kimbell's. so ruling, it applied first-in-time choateness doctrines, originally developed afford statutory tax special where governing Appeals reversed Court's judgment. While agreeing governed controversy "first in time, first right" principle controlled competing claims, court refused extend situations Government voluntary lender. Instead, common-law whereby meet Code perfection requirements achieved priority, held Kimbell's superior. Although did adopt Texas law, determine would also 77-1644, borrower obtained several loans Farmers Home (FHA) Consolidated Act 1961 (now redesignated Farm Rural Development Act), establish priority. To secure loans, FHA interest borrower's crops farm equipment, its filing standard financing statement with Georgia officials. Subsequently, repaired tractor on numerous occasions. When failed pay repair bills, retained acquired therein law. After had filed for bankruptcy been discharged his debts, States instituted action obtain possession tractor. granted summary judgment respondent, holding properly because inadequately described collateral; even description sufficient, both accorded respondent's lien. Affirming part reversing part, rule, based Model Code, validity statement. It collateral adequate perfect FHA's interest. As question, rejected well doctrines. their place devised "federal rule" giving repairman's when repairman continuously possesses property time arises. concluded only final bill took Held: 1. stemming lending must determined reference Since derive authority effectuate transactions specific Acts Congress passed exercise "constitutional function power," Clearfield Trust Co. States, 318 363, 366, 63 573, 574, 87 L.Ed. 838, rights, well, source. That statutes authorizing these do appropriate decision no way limits reach Pp. 726-727. 2. Because national is unnecessary protect interests underlying programs, relative consensual nondiscriminatory laws, congressional directive contrary. 727-740. (a) Incorporating rights against creditors will hinder administration programs. agencies' own operating practices, recognize are each State, belie assertion needed avoid administrative burdens created disparate rules. 729-733. (b) Deference customary practices conflict objectives form social welfare legislation, primarily designed assist farmers businesses cannot funds lenders reasonable terms. If intended sector, rather than taxpayers general, bear risks default entailed public have established scheme displacing substantially position extends status seeks safeguard fisc. 733-738. (c) Rejecting well-established proven workable could undermine stability community depends making reliable evaluations risk. Absent concrete reasons altering settled prudent course readymade body until strikes different accommodation. 739-740. 3. 77-1359 affirmed since gave preference vacated, case remanded sufficient treats repairmen's previously liens. P. 740. 557 F.2d 491, affirmed; 563 678, vacated remanded. Stephen R. Barnett, Dept. Justice, Washington, D. C., petitioner. Vernon O. Teofan, Dallas, Tex., Howell Hollis, III, Atlanta, Ga., Crittenden, Mr. Justice MARSHALL delivered opinion Court. 1 We certiorari absence setting priorities.1 resolve we decide controversies; second, fashion incorporate conclude source federal, but Accordingly, establishing 2 * 3 involves two personal K. Super Markets, (UCC).2 (SBA). lien, arises preceded guarantee, 4 1968, Markets borrowed $27,000 grocery wholesaler. Two identified supermarket's equipment merchandise collateral. contained "dragnet" clause providing future Markets. statements Secretary State according 5 February 1969, $300,000 Republic National Bank Dallas (Republic). bank accepted specified 1968 agreements, 90% authorizes such assistance3 but, one exception, SBA's interests.4 6 used proceeds satisfy remainder obligation discharge an indebtedness inventory purchased open account. continued credit sales balance due reached $18,258.57 January 15, 1971. Thereupon, initiated proceedings recover debt. 7 Shortly suit, defaulted SBA-guaranteed loan. assigned late December 1970, recorded assignment authorities 21, then honored paid $252,331.93 (90% outstanding indebtedness) 3, day, approval creditors, sold placed escrow pending resolution funds. Approximately year later, entered awarded $24,445.37, representing debt, plus attorney's fees. 8 thereafter brought instant foreclose claiming fund SBA's.5 Government. On determining controversy, principles Nat. 401 F.Supp. 316, 321-322 (N.D. Tex.1975). See, e. g., Security & Sav. Bank, 340 47, 71 111, 95 53 (1950); Pioneer American Ins. Co., 374 84, 83 1651, 10 770 (1963).6 Under rules, time" right."7 However, considered nonfederal "choate," is, sufficiently specific, arises.8 A state-created choate "identity lienor, subject amount established." New Britain, 347 81, 74 367, 369, 98 520 (1954); see Vermont, 377 351, 358, 84 1267, 1271, 12 370 (1964). Failure any conditions forecloses enforceable all purposes arose. 9 reduce 1972, either statement, 1971, assignment, inchoate F.Supp., at 324-325. Alternatively, claim advance clauses debts Market's subsequent purchases. Id., 325-326. reversed. 491 (CA5 1977). agreed program, id., 498 n. 9, 503 16, control claims. 502-503. Federal involuntary creditor delinquents, 498, 500-502. new "in context U. C. C.," UCC 503.9 11 qualified perfected. Disagreeing Court, that, advances, securing those dated 494-498, 503. But Rather, proceeded receive treatment common surveying three possible approaches,10 back therefore Republic's 1969 503-505. B At issue property. From 1970 Ralph Bridges (FHA), 1961.11 Like agency Bridges' officials 1972. subsequently repairs occasions, accumulating unpaid bills $1,600. 1973, again tractor, cost $543.81. $2,151.28, Ga.Code § 67-2003 (1978). 13 May 1, 1975, debts,12 tractor.13 respondent's, alternative grounds. First, Civ. Action 75-37-COL (MD Ga. Sept. 25, 1975). Second, Ibid. 14 part. ruled "the liabilities parties suit must, rationale doctrine, law." 680-681 1977) (footnotes omitted). See 838 (1943). fashioning assessing sufficiency elected follow 681-682. And, 682-683. 15 addressed neither nor first-in-time, first-in-right doctrines 683-689. place, rule," using Tax Lien 1966 guides. 679, 688-690.14 This give 690-691.15 Applying Crittenden's $543.81 692.16 II 16 has consistently questions involving nationwide explained supra, 366-367, S.Ct., 575: 17 "When disburses pays exercising constitutional power. . [to so] origin Constitution dependent laws [of State]. duties imposed upon find roots sources. applicable courts standards." (Citations footnote omitted.) 18 Guided principles, think clear unquestionably perform functions within meaning Clearfield. agencies source.17 activities "aris[e] bea[r] heavily program," " 'require' otherwise force." Little Lake Misere Land 412 580, 592, 593, 93 2389, 2397, 37 187 (1973).18 contexts, implicated warrant protection law.19 19 precisely spoken 'in area comprising issues related program government operation,' quoting Mishkin 800, directs fill interstices legislation "according U.S., 575.20 20 controls rights. more difficult task, turn, content rule. III 21 Controversies directly affecting operations although inevitably require resort 575; 594-595, 2397-2398. Whether matter judicial policy "dependent variety considerations always relevant nature governmental effects them applying Standard Oil 332 301, 310, 67 1604, 1609, 91 2067 (1947).21 22 Undoubtedly, "by character throughout Nation" necessitate formulation controlling Yazell, 382 341, 354, 86 500, 507, 404 (1966); 311, 1609; Illinois Milwaukee, 406 91, 105 6, 92 1385, 1393, 31 712 (1972). Conversely, there little need nationally may decision.22 Apart uniformity, application frustrate so, solicitous interests.23 Finally, our choice-oflaw inquiry consider extent disrupt relationships predicated law.24 23 argues effective contends further other right protectionist fiscal policies unpersuaded circumstances presented here, standards favoring necessary ease Treasury defaulting debtors. codes "furnish convenient solutions inconsistent interest[s]," 309, decline override intricate general applicability base daily transactions. 24 argument, similar uniformity precluded coverture contract. "specifically great detail adapted law," 357, 509, supplanting "important carefully evolved arrangements serve multiple purposes" minimal. 353, 507. Our conclusion compliance produce hardship practice "individually negotiat[ing] painfully particularized detail" transaction. 345-346, observations apply equal force here compel us reject generalized pleas substitutes evidence adopting adversely affect 25 Financial Assistance Manual relied Yazell longer "replete admonitions carefully," 357 35, 509; employees still instructed to, indeed do, law.25 fact, fair reading Manual, SOP 50-10 (SBA Manual), indicates assumes large State.26 Similarly, regulations expressly They mandate procedures perfecting maintaining valid highlight differ State. E. CFR §§ 1921.104(c)(1), 1921.105, 1921.106, 1921.107, 1921.108, 1921.111, 1930.5, 1930.8, 1930.9, 1930.14, 1930.17, 1930.27 (1978).27 ensure aware developments, "State supplements" "reflect changes version UCC." 1921.111(c); see, 1802.80, 1904.108(d), 1930.46(d)(3). Contrary complies procedural Reply Brief p. 7, agency's reliance substantive well. Indeed, suggest controlling. 1872.2(c), 1921.111(b), 1930.43, 1930.44, 1930.46(d)(1), (3) (1978); 1955.15(d). 26 Thus, rules.28 already conform State's standards. By local offices who familiar respective localities,29 effectively without legal 27 Nevertheless, maintains requiring assess dictate close scrutiny transaction thereby impede expeditious processing loans. disagree. Choosing responsible debtors necessarily individualized selection procedures, implemented considerable detail. Each applicant's financial condition evaluated rigorous lengthy process.30 Agency negotiate personally borrowers, investigate offered encumbrances, advice adequacy proposed arrangements.31 addition, they adapt terms every parties' needs capabilities.32 currently receives individual scrutiny, can readily adjust reflect just factual matters disbursing noted inUnited 348, 504, distinguishable "nationwide act[s] Government, emanating single source." (Footnote indication variant schemes burden current methods processing, convenience adoption 28 ability disbursed objectives. view, "to identify material distinction between dollar received collection taxes returned repayment loan." 22. Therefore, conclude, purpose insure prompt taxes"33 justified imposition context, recovering compels believe significant differences counsel unreflective extension immunize creditors. persuade deference 29 vital functioning, existence, denied. McCulloch Maryland, Wheat. 425, 428, 431, 579 (1819); Springer 102 586, 594, 253 (1881). recognized much 100 years ago authorized creation July 13, 1866, ch. 184, Stat. 107, recodified amended U.S.C. 6321-6323. importance revenues obligations justifies extraordinary through contrast, operates moneylending institution circumscribed recouping limited sums advanced order. less invoke protective measures manner disruptive existing markets. 30 equate misperceives principal concerns statutes. overriding obviously revenue collection. said programs.34 terms.35 Far doing interests,36 indicating safeguards maintain dealings reveals objectives.37 delinquent taxpayers, unable factors make likely. acts lender guarantor, voluntarily, detailed knowledge status. evaluate associated loan, examine choose believed assure repayment, set agreement.38 selecting recipients tailoring mind, fully capable repayment.39 32 nonetheless opportunity worthiness applicants provides minimal safety. not, believes demand greater ordinary arrangements. argument unconvincing. indiscriminately distribute hope reimbursement follow. "of sound value reasonably repayment." 636(a)(7); 120.2(c)(1) restriction. 1833.35 promulgated exhaustive instructions financially prevent improvident loans.40 lenders, Moreover, Congress' judiciously supports view intend confer privileges enter field. agree "[a]s quasi-commercial lender, [the Government] sovereign" tax-collecting capacity. F.2d, 500. 33 1966, 80 1125, amended, 6323, treating like amendments modified preferred many liens.41 enacting sought "improv[e] creditors" impairment "moderniz[ing] relationship creditors." S.Rep.No. 1708, 89th Cong., 2d Sess., 1-2 (1966), U.S.Code Cong. Admin.News 3722; H.R.Rep.No. 1884, 35 (1966). moneylender. actions choice context. areas left Congress, policy. RFC Beaver County, 328 204, 209-210, 66 992, 995-996, 90 1172 (1946). ignore disapproval unrestricted important Nation's taxation function. showing impair operations, contexts largely Congress. C 34 structuring transactions, businessmen depend provide essential evaluation involved. Cf. Whitney, 103 99, 102, 443 subjecting stability. Creditors justifiably rely expectations thwarted whenever suddenly appeared precedence.42 ultimate consequences foresee,43 hesitate create uncertainties, careful legislative deliberation. Of course, formulating vindicate rejecting time. accommodation.44 IV 36 hold directive, laws. affirm case. contested, what Nor "[t]he judges deal regularly districts circuits better how dispose [such] issues," Butner 48, 58, 914, 919, 136 (footnote omitted), vacate remand issues. So ordered. 436 903, 2230, 56 400 439 817, 77, 58 108 Tex.Bus. Com.Code Ann. 9.101 seq. (1968). Section 7(a) 72 387, 636(a)(1), permits assistance small "not available non-Federal sources." prefers disburse directly. 636(a)(2); 120.2(b)(1), 122.15(c) 36, infra. Jurisdiction premised 2410. 3670 (1952 ed.), codified 6321. arose, 3671 6322, required notice 3672 codified, 6323(a). conflicts rival 6323(b), (c), (d), (e), priorities displace created. infra, 738. well-accepted resolving disputes, Rankin Scott, 177, 179, 592 (1827); 85-86, 370-371, (1954), underlies Code's structure. 9-312(5), U.L.A. 85 (1979 pamphlet) (hereinafter UCC); J. White Summers, 905 86, 370; Acri, 348 211, 213, 75 239, 241, 264 (1955); F. Ball Construction 355 587 (1958) (per curiam ); united stateS (1963); 355, 1269, (1964); Equitable Life Assurance Soc., 384 323, 327-328, 1561, 1563-1565, 593 formulated test insolvency statute, Rev.Stat. 3466, 191, awards collecting insolvents. theory, defeat insolvency. practice, proved lienors strictures test. York Maclay, 288 290, 77 754 (1933); Texas, 314 480, 62 350, 356 (1941); Waddill, Holland Flinn, Inc., 323 65 304, 89 294 (1945); Gilbert Associates, 345 361, 73 701, 97 1071 (1953). later doctrine outside together requirement 51, 113. For discussion history test, Kennedy, Relative Priority Government: Pernicious Career Inchoate General Lien, Yale L.J. (1954) Priority). holding, formulate applicability, "leav[ing] another day" mechanic's 15. One approach afforded intervening execution agreement covering advances. Another advancing actual while third regardless notice. option prevail 503-504. now 657, "unable elsewhere finance rates terms." 307, 1922 (1976 ed., Supp. III). respondent. 64a Bankruptcy pre-existing 104(a); 3A W. Collier, 64.02[2] (14th ed. invoked 1345. 9-310 provides: person business furnishes services materials respect goods interest, given takes unless otherwise." pamphlet). repairmen: "Even though [federal lien] filed, shall valid. "With tangible price improvement property, holder been, arose." 6323(b)(5). result Georgia's 688 17, 689. Other Courts adopted divergent approaches regarding Compare, Chicago Title Sherred Village 568 217 (CA1 1978), cert. pending, 77-1611; Douglas MacArthur Senior Village, 470 675 (CA2 1972), denied, sub nom. County Nassau 922, 2732, 149 (1973); Oswald Hess 886 (CA3 1965); Willow Creek Lumber Porter Plumbing Heating, 572 588 (CA7 1978); Latrobe 246 (CA8), 890, 78 262, 189 (1957); T. H. Rogers Apel, 468 (CA10 with, Gregory-Beaumont Equipment 243 591 (CA8 1957); California-Oregon Plywood, 527 687 (CA9 Union Livestock Sales 298 755 (CA4 1962); Kramel, 234 577 1956); Chappell Auction, 523 840 1975); Bumb 276 729 1960). California, 305-306, 1606-1607, (1947); Seckinger, 397 203, 880, 884-885, 224 (1970); Friendly, Praise Erie —And Common Law, 39 N.Y.U.L.Rev. 383, 410 Sola Electric Jefferson 317 173, 176, 172, 165 (1942); Board Comm'rs Jackson 308 343, 349-350, 60 285, 287-288, 313 (1939). 49, 112; cf. 356, 305-307, 1606-1608; Mishkin, Variousness "Federal Law": Competence Discretion Choice Rules Decision, U.Pa.L.Rev. 797, (1957) Mishkin); Comment, Adopting Law Rule Decision: Proposed Test, 43 U.Chi.L.Rev. 823, 825 (1976); America Assn. Parnell, 352 29, 33-34, 119, 121-122, (1956); Miree DeKalb 433 31-32, 2490, 2493, 2494-2495, (1977). 287-288; Metropolitan 454, 456, 383 Holmberg Armbrecht, 327 392, 395, 582, 584, 743 (1946); Moor Alameda, 411 693, 701-702, 12, 1785, 1791-1792, 596 (1973). commentator: "Whether problem particular going program. incorporation arise operation competence yet clearly substance." 805. 28-29, 2493-2494; Brosnan, 363 237, 241-242, 1108, 1111-1112, 1192 (1960); 356-357, Auto Workers Hoosier Cardinal Corp., 696, 701-703, 1107, 1110-1112, 192 Allegheny County,, 322 174, 183, 64 908, 913, 88 1209 (1944); 995-996; 706-707, 1113-1114; Wallis Pan Petroleum 63, 68, 1301, 1304, 369 595-597, 2398-2399, Johnson Railway Express Agency, 421 465-466, 1716, 1722-1723, 44 295 (1975); 2494-2495; Robertson Wegmann, 590-593, 1991, 1995-1997, 554 De Sylva Ballentine, 351 570, 581, 76 974, 980, 1415 (1956). 1111-1112; 352-353, 506-507; 1304; 599-603, 2400-2402. "[i]n order implement facilitate th[e] programs," comply particular, obtaining 101.1(d)(3) And routinely follows Tr. Oral Arg. 43, file assignment. conforms reflected approved SBA, provided contract construed bound assigns provision. App. 68. example, stresses consideration law: "Uniform Code—Factor's Laws. Most states Factor's to-be-acquired inventory. Generally, accounts receivable resulting sale specialist inquire prior inventories receivables. (or Laws) invalidated fact deals own. study supervision imposed. inception, contain provisions servicing deemed "Accounts code serviced accordance date however, counsel, performed permitted interest." ¶ 29(a)(4)(b) supra. publication 1978 Regulations, began reorganizing separate cited modifications here. Fed.Reg. 5504, 7978, 23986, 55882-55895, 56643-56647, 59078 1701, 4431-4458, 6354, 10979-10980 (1979). convenience, refer CFR. moreover, insignificant comparison similarities. All except Louisiana enacted Art. minor variations. UCC, Judge Friendly observed Wegematic 360 674, 676 1966): gone far achieving desirable goal distinct disservice insist segment commerce, relation total, consisting States." 101.3, 101.7(a) 1800.1-1800.4 120.2(c), 3702 122.15, 122.16 &Par; 10, 11, 16-40; 1801.2-1801.4, 1904.108, 1904.127, 1904.175, 1980.175 344-346, 502-504; 101.2-1, 101.7(a), 16-17, 21(c), 23(a)-(f), 29(a)(8), 30(l), 31(b)(6); 1801.1-1801.4, 1801.11, 1930.5 uses forms preprinted descriptions commonly taken security. 682. blank space listing (Form 440-25). advise made, specifically "major items equipment" 1921.105(e)(1),(2) leave spaces recording details account materials. 440-4). 114. delineate nn. urges identical situations. overlooks evident needy receipt States. We, express proper supra ; 631 III) (declaration policy); 1921 (congressional findings); 55883 (1978) (to 1941.2); 566, 87th 1st (1961); Hearings H.R. 4384 House Committee Agriculture, 78th 43-45 (1944). 1958 amendment subordinates 396, 646. regulation purchase-money 1921.106 1930.44. circumstances, junior 1981(d) III); 1930.30 suggestion "undercutting" creating "arbitrary" pp. 24-25. preclude excepting prejudice 210, 995; 980; 596, 2398. remarkably Nation. 28, 38 30, 31, facts demonstrate protected themselves. informed Had followed guidelines checked records, discovered statements. 29(a)(3), (4), (8), 31(b)(6). known owed proceeds. 72. Additionally, negotiations Markets' portion wanted full credit. 62-63. easily persuaded subordinate terminate once satisfied. procedure, comported practices. allows impose "advisable," note forms. 30(e). With protecting themselves might demanded substantial 40 120.2, C.F.R. 122.2, 122.3 5-7; 41 relevance added list unrecorded Holders gives types 6323(b). Included group 6323(b)(5), 14, situations, 6323(c). 42 illustrate encounter. Neither mentioned SBA. 67-69. situation undercut reliability system, plays crucial role dealings. Subsequent trustworthy means discovering undisclosed Even stringent requirements. recognition burdens, commentators criticized frustrating creditors' generating inconsistencies application. G. Gilmore, Interests Personal Property 1052-1073 (1965); Plumb, Liens Priorities—Agenda Next Decade, 228 (1967); Spokane Vermont: Campaign Against 50 Iowa L.Rev. 724 Priority; Liens: An Unreasonable Extension Preference?, Mich.L.Rev. 1107 Considerable uncertainty opinions below. Developing case-by-case basis, depending involved, leaves definite below inhibit lenders' very people whom MacLachlan, Improving Priorities, B.C.Ind. Com.L.Rev. 73, 74-76 (1959). 242, 1111; 352, 26-27, 506; 1304.

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