APPEAL FROM THE WHITE CIRCUIT COURT. The Honorable Robert W. Thacker, Judge. Cause No. 91C01-1102-PL-10.
ATTORNEYS FOR APPELLANT: BRIAN R. GATES, TIMOTHY W. WOODS, J. THOMAS VETNE, Jones Obenchain, LLP, South Bend, Indiana.
ATTORNEY FOR APPELLEE: ELIZABETH B. SEARLE, Ball Eggleston PC, Lafayette, Indiana.
SHEPARD, Senior Judge. NAJAM, J., and KIRSCH, J., concur.
SHEPARD, Senior Judge
We conclude that Indiana should follow the majority rule on agreements to modify the priority of liens securing interests in a borrower's assets.
Here, the lender in first position agreed to subordinate part of its lien in favor of a third-position lender, in effect a partial assignment that reduced the extent of its first position. Such a contract should neither
harm nor help the second-position lender, who was not a party to the agreement.
We think recognizing such agreements is consistent with the Uniform Commercial Code and Indiana common law. We therefore affirm the trial court's decision.
FACTS AND PROCEDURAL HISTORY
Timothy, Lisa, Ross, and Dane Clark and their farming operations pledged their 2010 crops as well as other farm products and equipment as collateral to obtain loans from three different creditors, who perfected their security interests in the following order: First Farmers Bank & Trust, Co-Alliance, LLP, and Monticello Farm Service, Inc. In June 2010, the Bank and Monticello entered into an agreement in which Monticello agreed to finance the Clarks' 2010 crops, and in turn, the Bank agreed to subordinate its interests in those crops to Monticello's interests in the same:
WHEREAS, Monticello in consideration for certain financial accommodations to Borrower for the purpose of financing their 2010 crop, said financial accommodations including, but not limited to, monies dispersed, or to be dispersed, under a note or open account not to exceed the principal sum of Three Hundred Forty Thousand and 00/100 Dollars ($340,000.00), as well as any extensions, modifications or renewals thereof, has or may acquire a security interest or interests in the Borrower's 2010 crops grown or to be grown (together with any additions or accessions thereto as well as all proceeds and products thereof) and shall perfect said security interest by duly filing a financing statement or statements; and,
WHEREAS, the Subordinating Creditor, in order to induce Monticello to make the aforementioned financial accommodations to Borrower, desires and intends to subordinate and postpone the priority, operation and effect of its security interest in Borrower's 2010 crops growing or to be grown even though it, the Subordinating Creditor, has duly filed a financing statement or statements and perfected its security interest therein, and thereby may have priority over the security interests of Monticello in said 2010 crops whether by order of priority or purchase money status.
NOW, THERFORE, parties hereto, agree that all security interests of the Subordinating Creditor in any Borrower's 2010 crops growing or to be grown shall be subordinate, junior and inferior and postponed in priority to the priority, operation and effect of any security interest or interests of Monticello in Borrower's 2010 crops growing or to be grown, regardless of the order of filing or purchase money status.
This Agreement shall be binding on the parties hereto, their heirs, representatives, successors and assigns.
Appellant's App. pp. 204-05.
Timothy and Lisa filed for bankruptcy in November 2010. At that time, the Bank was owed $2,382,000, Co-Alliance was owed $221,000, and Monticello was owed $216,000. In December 2011, the Clarks and the three creditors entered into a settlement agreement in which the Clarks and the Bank waived any claim to $181,000 of the 2010 crop proceeds. The Bank " assign[ed] any interest it may have in those remaining proceeds to Co-Alliance subject to the rights and interests of Monticello pursuant to the Subordination Agreement dated June 25, 2010." Id. at 308. For their part, Co-Alliance and ...