By Paul Hodnefield, Esq.
Sometimes less is more when it comes to a UCC financing statement collateral description. Too much detail, such as describing collateral by location, may unintentionally narrow the collateral covered by the financing statement and hamper the secured party’s ability to enforce its security interest or agricultural lien. That was the situation in a recent case, In re: Coastal Plains Pork, LLC., 2012 Bankr. LEXIS 5784 (Bankr. E.D.N.C. Dec. 17, 2012).
The debtor in this case, Coastal Plains Pork, LLC (“Coastal Plains”), conducted hog-farming operations in several states, including Iowa and North Carolina. Coastal Plains obtained a loan from First National Bank of Omaha (“FNBO”) to finance its Iowa hog operations. In exchange, Coastal Plains granted FNBO a security interest on its livestock and proceeds. FNBO perfected its security interest by filing a financing statement with the North Carolina Secretary of State on October 7, 2008.
Farmers Cooperative Society (“FCS”) supplied feed for Coastal Plains’ hog-growing operations at several locations in Iowa. At some point in 2009, FCS filed liens with the Iowa Secretary of State for the unpaid value of feed it supplied to Coastal Plains between June and September 2009.
Iowa law provides a feed supplier with an agricultural lien for the retail value of the supplies. The lien applies to the livestock that consumed the supplied feed. Moreover, the lien has a super-priority over preexisting perfected security interests. To claim the lien, the unpaid feed supplier must simply file a financing statement that satisfies the UCC Article 9 perfection requirements within 31 days of the purchase.
The financing statements filed by FCS described the collateral as “All livestock located at:” followed by the farm name and address of the locations where it supplied feed to Coastal Plains. However, the financing statements failed to list at least seven farms where FCS had also provided feed for Coastal Plains’ hogs.
Coastal Plains filed for bankruptcy in September 2009. At the time, Coastal Plains owed FNBO approximately $15,560,000 and FCS, about $1,098,000. FCS claimed its agricultural liens on Coastal Plains’ livestock were entitled under Iowa law to first priority over FNBO’s prior perfected security interest. FNBO disagreed and filed an adversary action to determine the priorities between its security interest and the agricultural supply liens claimed by FCS.
One of the issues the court had to decide was whether the financing statements filed by FCS complied with the UCC Article 9 requirements for sufficiency of the collateral description. To obtain a super-priority agricultural lien on the livestock, FCS had to file a financing statement that sufficiently described the collateral within 31 days of the purchase of agricultural supplies. FNBO argued that the collateral description of “All livestock located at…” limited the scope of the financing statement to the livestock at the described farms.
The court agreed with FNBO. The court observed that a more generic description such as “All livestock” would have been sufficient to include the collateral at all the unlisted farms. However, the court found that the lack of a comma following “All livestock” indicated that FCS intended to limit its lien to the livestock located at the listed locations. Consequently, the financing statements FCS filed did not sufficiently indicate the collateral located at the seven farms it omitted from the list. The court ruled that FCS was not entitled to claim a lien for the $88,112 worth of feed supplied to the seven omitted farms.
The important thing to take away from this case is that a secured party should be careful about describing collateral by location on a financing statement. There certainly are situations where a secured party may wish to limit the description to collateral to particular locations, but that is not required by Article 9. In many cases, a less-specific description of the collateral by type, category or even the super-generic description of “All Assets” will better protect the secured party.
Paul Hodnefield is Associate General Counsel for Corporation Service Company (CSC) and a frequent speaker/writer on UCC search and filing issues. Please feel free to contact him with questions or comments at email@example.com, or 800-927-9801, ext. 2375.
 While both security interests and agricultural liens fall within the scope of UCC Article 9, the laws of different states apply to perfection and priority in this case. Coastal Plains was a North Carolina registered organization, so North Carolina law governed perfection and priority of FNBO’s security interest. However, the law of the jurisdiction where farm products are located governs perfection and priority of an agricultural lien. Therefore, the security interest was properly perfected by filing a financing statement in North Carolina, while the agricultural lien had to be perfected by filing in Iowa.