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SB 1339, if passed, would modify the Property Code, (Section 1, Subchapter E, Chapter 70) so to change the law regarding the perfection and priority of an agricultural lien on an agricultural crop. Namely, an agricultural lien on an agricultural crop becomes perfected when the crop is delivered or transferred by the agricultural producer to the contract purchaser or the purchaser’s agent. If there is a series of deliveries it perfects on the date of the last delivery. (This attachment language is found in Section 70.403 of the property code, which is referenced at the end of this analysis.)
More importantly, SB 1339 would, in spite of Chapter 9 of the Business and Commerce Code (dealing with secured transactions), give an agricultural lien on an agricultural crop priority over conflicting security interests.
In more straightforward language, what SB 1339 would effectively do is give farmers, those who produce agricultural crops, superior security interests to those of processors, transporters, or warehouse owners who take legal possession of said crops after harvest.
(Section 70.403 of the Property Code reads as follows: A lien created under this subchapter attaches to the agricultural crop on the date on which physical possession of the crop is delivered or transferred by the agricultural producer to the contract purchaser or the purchaser's agent, or if there is to be a series of deliveries to the contract purchaser or purchaser's agent, on the date of the last delivery of the agricultural crop to the contract purchaser or purchaser's agent.)
SB 1339 is a beneficial bill, though the language can be difficult to wade through. The principle reasoning behind the bill is that when a farmer transfers possession of his crop to a processor, transporter, or warehouse owner, only possession is transferred, not ownership. This is not clearly enough articulated in code and the means presented to solve this discrepancy, as introduced in SB 1339, is to give farmers superior security interests to those to whom the crop is delivered.
The reason why this language is necessary is that for most farmers, delivered crops represent effectively a whole year worth of labor. Under the current system a significant risk is incurred when possession of the harvest changes hands. If, as has happened before, the warehouse owner or another agent experiences financial difficulty, inventory as well as infrastructure can be lost in bankruptcy or other problematic financial proceedings. If the warehouse or other facility is taken over by a landing institution harvest in possession (but not ownership) may pass hands and it can be very difficult for a farmer to receive adequate payment for his labor, particularly when the harvest in question constitutes the farmer’s main income.
SB 1339 strongly imprints in the code the superior rights of farmers to their harvest, essentially re-enforcing the concept that transfer of possession is generally not a transfer of ownership in these scenarios. The language is technical and the bill is somewhat unique in that it over-rides another section of the Property Code. Despite this we feel that the positives significantly outweigh any of the negatives. We also do not feel that the bill would generate any significant perverse incentives. As such, on the grounds of protecting property rights, we support SB 1339.