Fin Ag, Inc. v. Hufnagle, Inc., f/k/a P & H Trucking, et al.; Kent Meschke Poultry Farms, Inc.

Summary

The Minnesota Supreme Court held that a buyer of farm products acquired the corn subject to Fin Ag's security interest despite the sales being made under third parties' names. Applying the Food Security Act and Minnesota's Uniform Commercial Code, the court concluded that buyer protections generally extend only to security interests created by the seller and do not protect against an interest created by an undisclosed owner. The court also held that Fin Ag's security interest remained effective against the buyer under Minnesota's good-faith filing exception.

Holdings

1. A buyer of farm products does not take free of a security interest merely because the buyer searched the central filing system under the name of a fronting or third-party seller. Under 7 U.S.C. § 1631, the buyer-in-the-ordinary-course protection applies only to a security interest created by the seller, and Meschke took subject to Fin Ag's interest under every factual characterization supported by the record.
2. Even assuming that the corn became inventory after transfer to the Tookers, Meschke still took subject to Fin Ag's security interest because Minnesota's version of UCC section 9-307, like 7 U.S.C. § 1631, protected a buyer only from a security interest created by the buyer's seller.
3. Fin Ag's security interest remained effective against Meschke under Minnesota's good-faith filing exception because Meschke had actual knowledge of the contents of the financing statement through the Minnesota central filing system.
4. Summary judgment was proper because the unresolved factual question whether the Tookers acted as agents, commission merchants, selling agents, or owners was not material; under each possible characterization, Meschke took subject to Fin Ag's security interest.

Questions Presented

1. Whether a buyer of farm products in a fronting transaction takes the goods free of a security interest under 7 U.S.C. § 1631 when the buyer checks the federal or Minnesota central filing system under the names of third-party sellers rather than the debtor who created the security interest.
2. Whether the corn became inventory rather than a farm product when transferred from Buck to the Tookers, such that Minnesota's version of UCC section 9-307 governed the subsequent sales.
3. Whether Fin Ag's failure to file its financing statement in the debtor's county rendered its security interest ineffective against Meschke under Minnesota's good-faith filing exception.
4. Whether summary judgment was proper despite factual uncertainty regarding the Tookers' legal capacity in the transactions.

Disposition

affirmed