United States v. Kimbell Foods, Inc.

440 U.S. 715 (1979)

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Nature of the Case

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Facts

In 1968, O.K. borrowed $27,000 from Kimbell Foods (P) under security agreements perfected under financing statements with the Texas Secretary of State. The lien contained a dragnet clause securing future advances. In 1969, O.K. borrowed $300,000 from Republic National Bank and the bank accepted as security the same property used to secure P's prior note. The SBA guaranteed 90% of the loan. O.K. used some of the loan proceeds to retire the 1968 obligation to P. By 1971, the credit sale balance due to P was $18,258.57, and P sued O.K. to recover the inventory debt. Shortly before P's suit, O.K. defaulted on the SBA loan. The United States paid Republic 90% of the outstanding debt. State court entered judgment against O.K. on P's suit and awarded $24,445.37. P sought to foreclose on its lien, but the District Court held for the Government. The court determined that federal law controlled the issue and the Court applied the analogy of federal tax liens. The court ruled that P was not choate until the identity of the lienor, the property subject to the lien, and the amount of the lien were established. Because P did not reduce its lien to judgment until 1972, (the federal lien had been created in 1969 with the filing of Republic's financing statement or in 1971 by the filing of the assignment, his lien was inchoate. The Court of Appeals reversed; it refused tax lien analogy when the Government was a voluntary commercial lender and ruled that the first in time to meet UCC perfection requirements achieved priority. The Court of Appeals then ruled that P had perfected first in 1968 and that the future advances were covered and took precedence over the 1969 loan.

Another similar case in Georgia was grouped for review. Bridges obtained several loans from the Farmers Home Administration (FHA), under the Consolidated Farmers Home Administration Act of 1961. The statute does not establish rules of priority. To secure the FHA loans, the agency obtained a security interest in Bridges' crops and farm equipment, which it perfected by filing a standard FHA financing statement with Georgia officials on February 2, 1972. Bridges subsequently took his tractor to Crittenden for repairs on numerous occasions, accumulating unpaid repair bills of over $1,600. On December 21, 1973, Bridges again had Crittenden repair the tractor, at a cost of $543.81. When Bridges could not pay the balance of $2,151.28, Crittenden retained the tractor and acquired a lien therein under Georgia law. Ga.Code § 67-2003 (1978). The United States instituted this action against Crittenden (D) to obtain possession of the tractor. The District Court rejected the Government's claim that the FHA's security interest was superior to D's and granted summary judgment for respondent on alternative grounds. The Court of Appeals affirmed in part and reversed in part. The court elected to follow the Model UCC, rather than to incorporate Georgia law. And it determined that the description of the collateral was adequate under the Model UCC to perfect the FHA's security interest. It concluded that neither state law nor the first-in-time, first-in-right and choateness doctrines were appropriate to resolve the conflicting claims. In their place, the court devised a special 'federal commercial law rule,' using the Model UCC and the Tax Lien Act of 1966 as guides.