An unfortunate consequence of a lagging agricultural economy is that many agricultural seed and chemical providers are left with outstanding customer accounts. One of the questions that comes across my desk from these suppliers is “What can I do to protect my interests (and get paid)?” Texas Agriculture Code Chapter 128 provides a unique lien for suppliers of agricultural seed and chemicals who comply with certain steps. For many, by the time a past due account has reached a point where the provider is seeking help collecting payment, it is too late to seek any kind of protection that Chapter 128 provides. This post is written to highlight the steps that an agricultural seed or chemical provider must take, beginning before any products are sold, in order to take advantage of its protections. This post is also written to alert all farmers and other customers of agricultural chemical and seed providers of the scope of a Chapter 128 lien and to explain some of the consequences that may result from not remaining current on those financial obligations.
Who’s Eligible to Claim a Lien?
Generally speaking, a person who provides an agricultural chemical, agricultural seed, or labor associated with the delivery of the chemical or seed may file a notice of claim of lien under Chapter 128 of the Texas Ag Code.
The term “agricultural chemical” in Chapter 128 includes the following applied to crops or to land used for growing crops: (i) “Fertilizer material” – defined as a solid or nonsolid substance or compound that contains an essential plant nutrient element in a form available to plants and is used primarily for its essential plant nutrient element content in promoting or stimulating growth of a plant or improving the quality of a crop or for compounding a mixed fertilizer. The term does not include animal manure, plant remains, or a mixture of those substances, for which no specific nutrient analysis claim indicates guaranteed nutrient levels; (ii) “Pesticides” – defined as a substance or mixture of substances intended to prevent, destroy, repel, or mitigate any pest, or any substance or mixture of substances intended for use as a plant regulator, defoliant, or desiccant; (iii) “Plant regulators” – defined as a substance or mixture of substances intended through physiological action to accelerate or retard the rate of growth or rate of maturation, or otherwise to alter the behavior of an ornamental or crop plant or the product of an ornamental or crop plant, but does not include a substance to the extent that it is intended as a plant nutrient, trace element, nutritional chemical, plant inoculant, or soil amendment; (iv) Lime; (v) Plant and soil amendments; (vi) Plant food; (vii) Herbicides, or (viii) Chemical compounds.
The term “agricultural seed” includes the seed of any grass, forage, cereal, or fiber crop, any other kind of seed commonly recognized in Texas as agricultural or field seed, and any mixture of those seeds.
Used here, the term “labor” refers to labor or services performed in the application, delivery, or preparation of an agricultural chemical or agricultural seed.
What Steps are Necessary to Be a Lienholder?
Before Initial Sale
To be in a position to file a lien against a non-paying customer, Texas law requires that the seller of an ag chemical or seed first provide notice to purchasers of ag chemicals/seeds that the seller intends to act under Chapter 128 before the purchase of chemicals/seeds occurs. The notice can be a general notice to all purchasers or to each specific purchaser.
The notice must state:
“The sale of agricultural chemicals or agricultural seed on credit and the provision of labor related to agricultural chemicals or agricultural seed is subject to Chapter 128, Agriculture Code. Failure to pay the agreed or reasonable charges for the chemicals, seed, or labor may result in the attachment of a lien to the proceeds of the agricultural products produced with the aid of the chemicals, seed, or labor.”
The notice should be a part of all credit applications, customer contracts, invoices, and statements of account, as applicable.
Initial Notice After Payment is Past Due
Once a customer account is over 30 days past due, an ag chemical or seed provider seeking to claim a lien under Chapter 128 must notify the customer of its intent to do so via a written letter sent by certified mail.
Chapter 128 of the Ag Code details the specific requirements that must be included in the letter, including, but not limited to, the following: (i) express statement that the account is past due, (ii) listing the dollar amount that is over 30 days past due, (iii) explaining ag chemical/seed provider’s intent to file a lien under Chapter 128 of the Texas Ag Code if the account is not fully paid within 10 days from the date the notice is received, (iv) setting forth specific payment options for the customer to avoid the filing of a lien.
File Notice of Claim of Lien with Secretary of State
If 10 days pass after the customer receives the notice described above, and the customer still hasn’t paid or notified the ag chemical/seed provider that it intends to pay, or otherwise enter into some sort of agreement with the ag/chemical seed provider as outlined in the notice letter, then the ag chemical/seed provider may file its lien.
This is done by filing a UCC-1 financing statement with the Texas Secretary of State. While this is the same form that a general lien claimant (i.e., a bank or other financial institution) uses to perfect its interest in certain collateral of a debtor, it is important to note that in order to claim and perfect the Chapter 128 ag lien, the appropriate box in section 6b of the UCC-1 form must be checked.
Additional statutory requirements provide that certain language be used to describe the collateral and specific references be made to Chapter 128 and its process. To ensure that the most current statutory guidance is being followed, before filing a UCC-1, an agricultural seed or chemical provider should review the most recent version of Chapter 128 and consult with an attorney to confirm the lien form has been prepared correctly.
In addition to the specific statutory requirements for the UCC-1 form, the agricultural seed or chemical provider must prepare and file a notarized affidavit with the UCC-1, which explains how it has complied with the Chapter 128 requirements and affirms the amount of the debt that is due and owing.
Notify Customer of Lien Filing
Within 10 days after the notice of claim of lien is filed with the Secretary of State, the agricultural seed or chemical provider must send a copy of the UCC-1 financing statement (including the affidavit) to the debtor, in order to notify the debtor that a notice of lien claim was filed with the Secretary of State.
What Does Lien Attach to?
Generally speaking, the lien attaches to proceeds from the sale of the crop that the chemical was applied t by a lien debtor, before a deduction for taxes, fees, or assessments or a deduction made under a court order, from the sale of: (1) the crop that existed at the time of application on the land of the agricultural chemical sold by the lien claimant or applied, delivered, or prepared by the lien claimant; (2) the first crop produced on the land after the agricultural chemical sold by the lien claimant or applied, delivered, or prepared by the lien claimant was applied, if crops did not exist on the land at the time the agricultural chemical was applied; or (3) the crop produced from the agricultural seed supplied by the lien claimant or applied, delivered, or prepared by the lien claimant. For more specific questions about what “proceeds” does and does not apply to, agricultural chemical or seed providers should consult an attorney to discuss specific facts and situations.
When Does the Lien Attach and How Long Does My Lien Last?
A Chapter 128 lien attaches on the first day agricultural chemicals, labor, or both are furnished to the lien debtor. However, if the notice and lien requirements set out in Chapter 128 are not followed correctly, the lien is no longer in effect.
The lien remains valid as long as the amount listed in the notice of claim of lien remains unpaid.
Will My Lien Be Given Priority?
Chapter 128 liens are governed by the “first in time, first in right” principle, meaning that a Chapter 128 lien that is filed before another security interest that covers the same collateral and is perfected by the filing of a UCC-1 financing statement will have priority over that subsequent interest.
How Much is the Lien For?
The lien amount is equal to the customer’s unpaid charges for all ag chemicals and labor that were provided to the customer within the 180-day period prior to the date the notice of claim of lien is filed with the Secretary of State, plus lien filing fees.
Chapter 128 liens are an important financial protection tool for agricultural seed and chemical providers, so long as the specific statutory requirements are followed. This post does not address the enforcement of the Chapter 128 lien; that process will be covered in a subsequent posting. All purchases of agricultural seed and chemicals should also be aware of the consequences that can result from non-payment for agricultural seed and chemicals purchased from a Chapter 128 supplier.
Written by Amber S. Miller
Amber S. Miller is a partner with Crenshaw, Dupree & Milam, LLP, specializing in agricultural law, business and commercial law and litigation, civil litigation, administrative law, and water law.
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CRENSHAW, DUPREE & MILAM, L.L.P.
P.O. Box 64479
Lubbock, Texas 79464-4479
Phone (806) 762-5281
Physical Address: 4411 98th Street, Happy State Bank Building, Suite 400, Lubbock, Tx. 79424