TWIN FALLS • A lien on feed doesn’t survive consumption, said the Idaho Supreme Court Friday when overturning a Twin Falls County District Court Ruling.
Farmers National Bank sued a slew of feed suppliers, and a defunct Buhl dairy farm, in 2011 after the suppliers claimed they were owed some of the proceeds from the sale of the cattle the bank repossessed.
The question in the suit was whether Idaho law says that a lien by a feed seller attaches only to the actual feed sold, or if it attaches to the animal because the feed allows it to grow and survive.
In May, Twin Falls County District Judge Richard Bevan ruled in favor of the feed sellers, denying Farmers’ claim that its lien on the dairy’s cows took priority over the feed sellers’ liens. Farmers appealed the decision to the Idaho Supreme Court in July.
The case has its roots back in 2008 and 2009, when Green River Dairy, owned by Herculano and Frances Alves, took out 10 loans with Farmers National Bank with their dairy’s cattle as collateral.
Court records say several feed sellers — including Hull Farms, Carter Hay and Livestock, Lewis Becker, Jack McCall and Tim Thornson — sold hay and wheat to the dairy to be used as cattle feed.
Later, Green River Dairy defaulted on its loans with Farmers. The bank then took possession of the cattle and sold them through an auction, raising about $212,000.
With money still owed, the feed sellers sought part of the proceeds, arguing their liens should not become invalid just because the feed was eaten. A lien would become of little value if it disappeared with the feed, given how quickly feed is eaten, they argued.
In its decision, the Idaho Supreme Court decided that statutory liens on agriculture products created under Idaho code do not live on inside livestock that consumed the product.
Because the lien only extends to agricultural products and the proceeds of the sale of agricultural products, the district court made an error in its conclusion because livestock are not included in the definition of “agricultural products,” in Idaho law, the Idaho Supreme Court’s decision says.
“Had the legislature wished to include livestock in the definition of ‘agricultural product’ it easily could have,” the court later says. “However it did not.”
Two justices agreed with Justice Daniel Eismann, who wrote the opinion.
Justice Jim Jones dissented.
Jones writes that his fellow justices had a sound technical argument, but said the legislative history of the law dictates a different outcome.
“Perhaps my view of the legislature’s action is somewhat influenced by having grown up in the cattle-feeding business,” Jones wrote in his dissent.
Jones also noted the Beven presides in “farm country.”
The language of the law isn’t ideal, Jones writes.
Those in the feed industry understood that a feed lien is of little value if it is extinguished at the moment the feed is ingested by the animal, he said.
“While feed does not obviously convert to fat, muscle and bone on a one-to-one radio, some of the feed undeniably converts to bodily substance and enhances the value of the livestock,” he said.
Jones noted that the amount Farmers received from the sale of some of the livestock was only slightly more than the sellers furnished in feed, about $185,000.
“Had the respondents not furnished the feed, the livestock may have not survived to sale,” he wrote.
“We believe the supreme court made the right decision,” said Bob Naerebout, executive director of the Idaho Dairymen’s Association.
Had the court sided with Green River Dairy and the sellers, Naerebout said, it could have become harder to borrow money and lower the value that farmers could borrow based on their cattle.
“It’ll give lenders the confidence that they have a perfected first lien,” he said. “It definitely will help the ability to borrow.”