Legal Insight. Business Instinct.

Agricultural Commodity Dealer Liens

Lance J. Schuster

You can’t drive down the freeway in Idaho without passing a tractor-trailer hauling hay or straw. 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, corn, oats, 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.

The secretary of state has a form titled “Notice of lien on agricultural products” that must be completed and filed prior to the expiration of the 180-day time period. The secretary requires a $5 filing fee with the form.

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 grain) or whether it also attaches to the livestock that eat the product.

The Idaho Supreme Court considered this issue in the case of Farmers National Bank v. Green River Dairy LLC 155 Idaho 853 (2014). In the Farmers case, a group of producers sold hay and wheat products to Green River Dairy for feed for cattle. The hay and wheat was fed to cattle. However, Farmers National Bank had previously made loans to Green River, and Green River had granted Famers National Bank a security interest in its dairy cows.

The Idaho Supreme Court decided that the lien created by Idaho Code § 45-1802 only applied to the agricultural products (e.g., hay and grain) and to the proceeds of the sale of the agricultural products. The lien did not apply to the dairy cows after they consumed the hay and grain. The court ruled that the producers who provided the hay and grain did not have a lien on the dairy cows.

The lesson to be learned is that while a lien provides some protection, a producer or dealer in agricultural commodities should also take some practical steps. For example, a producer might require a down payment before shipping or require a credit check before shipping a product to a new customer. Also, a producer should never overextend themselves shipping more commodity than they can afford to lose.

For additional guidance, a producer should consult with an agricultural lawyer.

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