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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.