Opinion ID: 2344653
Heading Depth: 1
Heading Rank: 2

Heading: Priority of the liens

Text: For their first point on appeal, Appellants argue that the circuit court erred in ruling that the Bank was entitled to a priority over their security interests in the corn project. Specifically, Appellants contend that the circuit court erroneously interpreted Ark.Code Ann. § 4-9-322 (Repl. 2001) because, they maintain, its PMSI followed the crop, including the proceeds from the sale of the crop, and took priority over the Bank's lien. Relying upon Ark. Code Ann. § 4-9-324 (Repl.2001), Appellants assert a superpriority status because section 4-9-324 is broad enough to encompass a `seedmoney lender' as a purchase money security interest holder. Further, Appellants claim that Arkansas law has long afforded a special priority to those who assist farmers with financing the planting, growing, and harvesting of their crops. The Bank responds, arguing that the circuit court properly ruled that the Bank's lien had priority under Ark.Code Ann. § 4-9-322 because of its first-in-time, first-in-right status. Appellees specifically contend that certain revised provisions of Article 9 of the Uniform Commercial Code (UCC) apply to the present case; however, Appellees assert that those revised provisions have not been adopted in Arkansas. This appeal presents an issue of statutory construction. The basic rule of statutory construction is to give effect to the intent of the legislature by giving words their usual and ordinary meaning. Arkansas Soil & Water Conservation Comm'n v. City of Bentonville, 351 Ark. 289, 92 S.W.3d 47 (2002). Where the statutes are unambiguous, we construe them by looking to all laws on the subject, viewing them as a single system, and giving effect to the general purpose of the system. Id. We take pains to harmonize statutes which are seemingly in conflict. See, e.g., Barclay v. First Paris Holding Co., 344 Ark. 711, 42 S.W.3d 496 (2001). Further, it is blackletter law for statutory construction to give effect to the specific statute over the general. Id. The primary issue in this appeal involves the priority of liens in crops. The rules of priority are governed by Article 9 of the Uniform Commercial Code, which is codified at Ark.Code Ann. §§ 4-9-101-4-9-709 (Repl.2001 and Supp.2005). In Arkansas, the general rule of priority, found at Ark.Code Ann. § 4-9-322, provides in pertinent part: (a) Except as otherwise provided in this section, priority among conflicting security interests and agricultural liens in the same collateral is determined according to the following rules: (1) Conflicting perfected security interests and agricultural liens rank according to priority in time of filing or perfection. Priority dates from the earlier of the time a filing covering the collateral is first made or the security interest or agricultural lien is first perfected, if there is no period thereafter when there is neither filing nor perfection. (2) A perfected security interest or agricultural lien has priority over a conflicting unperfected security interest or agricultural lien. (3) The first security interest or agricultural lien to attach or become effective has priority if conflicting security interests and agricultural liens are unperfected. Id. (emphasis added). Our well established rule is that the priority of liens is generally determined by the maxim, first-in-time, first-in-right. Dempsey v. Merchants Nat'l Bank, 292 Ark. 207, 210, 729 S.W.2d 150, 151 (1987). Appellants, however, ask us to abandon this longstanding rule of priority in order to carve out an exception, which, they contend, is found in Ark.Code Ann. § 4-9-324(a). Specifically, appellants contend that their PMSI is in the identifiable proceeds, id., of the collateral sold to Clark. Section 4-9-324 provides in pertinent part: (a) Except as otherwise provided in subsection (g), a perfected purchase-money security interest in goods other than inventory or livestock has priority over a conflicting security interest in the same goods, and, except as otherwise provided in § 4-9-327, a perfected security interest in its identifiable proceeds also has priority, if the purchase-money security interest is perfected when the debtor receives possession of the collateral or within twenty (20) days thereafter. (b) Subject to subsection (c) and except as otherwise provided in subsection (g), a perfected purchase-money security interest in inventory has priority over a conflicting security interest in the same inventory, has priority over a conflicting security interest in chattel paper or an instrument constituting proceeds of the inventory and in proceeds of the chattel paper, if so provided in § 4-9-330, and, except as otherwise provided in § 4-9-327, also has priority in identifiable cash proceeds of the inventory to the extent the identifiable cash proceeds are received on or before the delivery of the inventory to a buyer, if: (1) the purchase-money security interest is perfected when the debtor receives possession of the inventory; (2) the purchase-money secured party sends an authenticated notification to the holder of the conflicting security interest; (3) the holder of the conflicting security interest receives the notification within five (5) years before the debtor receives possession of the inventory; and (4) the notification states that the person sending the notification has or expects to acquire a purchase-money security interest in inventory of the debtor and describes the inventory. Id. See also Herringer v. Mercantile Bank, 315 Ark. 218, 866 S.W.2d 390 (1993) (decision under prior law) (holding that the purchase money security interest had priority over all conflicting security interests, including the landlord's lien); Niedermeier v. Central Prod. Credit Ass'n, 300 Ark. 116, 777 S.W.2d 210 (1989) (decision under prior law) (holding that the bank's extension of the farmer's crop loan did not constitute new value giving the association's security interest in the farmer's crops priority over the bank's security interest). With this precedent in mind, we turn to the two statutes at issue. Here, Arkansas Code Annotated § 4-9-324 establishes the priority for PMSIs and provides that the interest extends to the goods sold or its identifiable proceeds. The collateral for Searcy's PMSI was seed, chemicals, and fertilizer rather than Clark's crop. In other words, the collateral sold to Clark by Searcy was seed and other farming supplies, as noted by the security agreement, for the express purpose of Clark's use in his farming operations. `Collateral' means the property subject to a security interest or agricultural lien. Ark.Code Ann. § 4-9-102(a)(12). The term includes proceeds to which a security interest attaches[.] Ark.Code Ann. § 4-9-102(a)(12)(A). While Appellants argue that Clark's crops are the identifiable proceeds of that collateral under section 4-9-324, we do not agree. Arkansas Code Annotated § 4-9-102(a)(64) defines proceeds as follows: (A) whatever is acquired upon the sale, lease, license, exchange, or other disposition of collateral; (B) whatever is collected on, or distributed on account of, collateral; (C) rights arising out of collateral; (D) to the extent of the value of collateral, claims arising out of the loss, nonconformity, or interference with the use of, defects or infringement of rights in, or damage to, the collateral; or (E) to the extent of the value of collateral and to the extent payable to the debtor or the secured party, insurance payable by reason of the loss or nonconformity of, defects or infringement of rights in, or damage to, the collateral. Id. Appellants fail to cite any case law or statutory authority that defines crops as the identifiable proceeds of seeds, and without such authority, we decline to do so. See Farmers Cooperative Elevator Co. v. Union State Bank, 409 N.W.2d 178, 180 (Iowa 1987) (holding that hogs are not the proceeds of the feed they consume). Therefore, based upon our rules of statutory construction, we see no express seedmoney-lender provision in section 4-9-324, nor do we interpret section 4-9-324 to give a superpriority to agricultural-supplier liens. See e.g., Jason Finch, The Making of Article 9 Section 9-312(2) into Model Provision Section 9-324A: The Production Money Security Interest: Finally a Sensible Superpriority for Crop Finance, 5 Drake J. Agric. L. 381, 385 (2000). We adhere to the well established first-to-file rule found in Ark.Code Ann. § 4-9-322, which provides that, when there are conflicting security interests, priority is given to priority in time of filing or perfection. Id. Here, the Bank had a perfected security interest in Clark's crops from the time that the financing statements were filed in July and September of 2001; Searcy's PMSI was not filed until March and May of 2002. Under section 4-9-322, the Bank had a first-in-time lien on Clark's crops. Under the revised provisions of UCC 9-103A, and 9-324A, Appellants would have had a PMSI that was superior to the Bank's perfected security interest; however, these UCC sections have not been adopted by our legislature. See U.C.C. §§ 9-103A and 9-324A (2006). While we recognize that this result appears harsh for the agricultural suppliers of our state, the resolution of this policy issue is a matter better left to our legislature. Therefore, based upon the foregoing reasons, we hold that the circuit court properly ruled that the Bank's interest was first, prior, and paramount to the security interest of Appellants.