Do You Qualify For One Of California's "Secret Liens"?
California laws provide “secret liens” for farmers that often times have priority over other types of commercial liens. Examples include: agricultural laborer’s lien under California Civil Code Section 3061.5; livestock servicers liens under California Civil Code Section 3080.01; and agricultural producer’s lien under California Food & Agric. Code Section 5563. These liens are “secret” because they are not usually evidenced in a public record. This article covers the basics of the agricultural producers lien.
Section 55631 of the California Food and Agric. Code creates a producer’s lien and states the following:
Every producer of any farm product who sells any product which is grown by him to any processor under contract, express or implied, in addition to all other rights and remedies which are provided for by law, has a lien upon such product and upon all processed and manufactured forms of such farm product, for his labor, care, and expense in growing and harvesting such product. The lien shall be to the extent of the agreed price, if any, for such product so sold. If there is no agreed price or a method for determining it which is agreed upon, the extent of the lien is the value of the farm product as of the date of delivery . . . .
Essentially, the lien protects producers from nonpayment by processors. The intent of the producer lien laws was to protect a farmer who sells his or her commodities to a processor under a promise of payment at a later date. The basis for the adoption of the producers lien law was that the “grower has the risk of producing the crop and it would be inequitable and contrary to the public interest in a viable agricultural industry to leave the grower vulnerable to insolvent processors.” Frazier Nuts v. American Ag Credit (2006) 141 Cal.App.4th 1263 (“Frazier Nuts case”).
A producer is “any person that is engaged in the business of growing or producing any farm product.” Cal. Food & Ag. Code §55408. According to Cal. Food & Ag. Code §55407, a “processor” is:
[A]ny person that is engaged in the business of processing or manufacturing any farm product, that solicits, buys, contracts to buy, or otherwise takes title to, or possession or control of, any farm product from the producer of the farm product for the purpose of processing or manufacturing it and selling, reselling, or redelivering it in any dried, canned, extracted, fermented, distilled, frozen, eviscerated, or other preserved or processed form. It does not, however, include any retail merchant that has a fixed or established place of business in this state and does not sell at wholesale any farm product which is processed or manufactured by him.
The producer’s lien arises automatically without any filing requirement and is “on every farm product and any processed form of the farm product which is in the possession of the processor without segregation of the product.” Cal. Food & Ag Code Section 55634. In other words, a processor may commingle agricultural products from California producers and other producers and the California producers retain a lien over the commingled crop inventory. In re California Pacific Rice Milling, 265 B.R. 237 (E.D. Cal. 2001) (“California Rice Milling case”). Commingling product does not extinguish the lien.
The lien attaches upon delivery of the product, or if there is a series of deliveries, from the date of the last delivery. Cal. Food & Ag Code §§55632, 55634. The producer’s lien has priority over all other liens, claims, or encumbrances, except for limited circumstances involving labor claims and warehousemen’s liens. Cal. Food & Ag Code §§55632, 55633, 55635.
Where a producer’s lien has attached, it is unlawful for a processor to remove, “from this state or beyond his ownership or control, any farm product which is delivered to him, or any processed form of the farm product, to which any of the liens provided in this chapter have attached.” Cal. Food & Ag. Code §55638. However, a processor is not prohibited from selling the farm product to which a lien has attached, so long as the total proceeds from the sale are used to satisfy the producer’s liens.
The producers lien is possessory; if the processor transfers title and possession of the products, the lien is extinguished. Cal. Food & Ag. Code §55634. To release a lien, the processor can, among other things, issue payment or security for the product (i.e., posting a bond in the amount of the lien). Cal. Food & Ag. Code §§55637, 55639.
The advantages of the producers lien is that it has priority over numerous commercial liens and it is an inexpensive means of securing payment for products by farmers. However, the disadvantages are that it is a possessory lien and is extinguished when possession is transferred. If you believe you have an enforceable producer’s lien, it is imperative that you act quickly to protect your interest in payment for the product.