Janitell v. The State Bank of Wiley
919 P.2d 921 (1996)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A security interest granted by a landlord in present and future crops does not attach to crops planted, grown, and owned by a tenant on the leased property, because the landlord-debtor does not have rights in the tenant's crops.
Facts:
- In 1988, the Janitells, as landowners, granted Fidelity State Bank a security interest covering all present and future crops grown on their property.
- In 1991, the Janitells leased the property to Janitell Grain & Cattle Company for cash rent.
- The Janitells defaulted on a separate promissory note, leading to foreclosure proceedings on the property.
- In the fall of 1993, while foreclosure was pending, the tenant, Janitell Grain, planted a wheat crop on the leased land.
- Shortly after the crop was planted, State Bank of Wiley redeemed the property as a junior lienholder in the foreclosure.
- Fidelity State Bank assigned its 1988 security interest to United Land Holdings, LLC (ULH).
- The new owners who purchased the property from State Bank harvested the wheat crop in the summer of 1994.
Procedural Posture:
- The Janitells initiated a lawsuit seeking to invalidate a foreclosure action on their property.
- State Bank of Wiley answered the complaint, asserted counterclaims, and was granted leave to join Janitell Grain as a plaintiff.
- The parties entered into a court-ordered stipulation intended as a full settlement, which provided that State Bank would receive title to the property.
- After the Janitells failed to exercise a purchase option granted in the stipulation, the trial court issued a writ to evict the Janitells and Janitell Grain.
- United Land Holdings, LLC (ULH) moved to intervene in the lawsuit, claiming a right to the crop proceeds via a security interest assigned from another bank.
- The parties agreed to submit the case to the trial court on competing motions for summary judgment.
- The trial court granted summary judgment in favor of State Bank of Wiley, ruling that ULH had no valid security interest and Janitell Grain had waived its rights.
- ULH and Janitell Grain appealed the trial court's judgment to the intermediate appellate court.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a security interest granted by a landlord in all growing crops on a specific parcel of land attach to crops planted, grown, and owned by a tenant leasing that land?
Opinions:
Majority - Judge Briggs
No. A security interest in crops does not attach unless the debtor has rights in those crops. For a security interest to attach, three requirements must be met: (1) a written security agreement signed by the debtor, (2) value given by the creditor, and (3) the debtor must have rights in the collateral. Here, the debtors were the Janitells (the landlords), not Janitell Grain (the tenant). While the Janitells had a right to receive cash rent payments under the lease, they held no ownership or other contractual interest in the actual wheat crop grown and owned by Janitell Grain. Because the debtor (Janitells) had no rights in the collateral (the wheat crop), ULH's security interest could not attach to it. Additionally, the court found that Janitell Grain waived any statutory right it might have had to the crop by entering a stipulation that was intended to be a full and final settlement, granting 'good and merchantable title' to State Bank.
Analysis:
This decision reinforces the fundamental UCC principle that a security interest is not enforceable until the debtor has 'rights in the collateral.' It clarifies that a landlord's blanket security interest in 'crops' on their land does not automatically extend to crops that are separately owned by a tenant. This protects tenants and their creditors from claims by the landlord's creditors. For lenders, it underscores the importance of conducting due diligence to determine the true ownership of agricultural collateral, rather than assuming the landowner owns everything produced on the land.
