ILNews

COA adopts rule allowing for partial subordination of 1st lienholder’s interest

Back to TopCommentsE-mailPrintBookmark and Share

The Indiana Court of Appeals Wednesday decided the state should follow the majority rule on agreements to modify the priority of liens securing interests in a borrower’s assets.

Timothy, Lisa, Ross and Dane Clark and their farming operations pledged their 2010 crops as collateral to obtain loans from First Farmers Bank & Trust, Co-Alliance, LLP, and Monticello Farm Service, Inc. First Farmers was the first lienholder, Co-Alliance the second lienholder, and Monticello the third lienholder.  In June 2010, the bank and Monticello entered into an agreement in which Monticello would 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.

Due to financial issues, Timothy and Lisa Clark entered into a settlement agreement which held the proceeds of their 2010 crop – $181,000, in an escrow account. Monticello sought to claim those proceeds based on the subordination agreement; Co-Alliance counterclaimed against Monticello, asserting it held the first priority lien. The trial court found Monticello was entitled to the disputed funds.

“The clear language of the subordination agreement shows that the parties’ intent was for the Bank to assign to Monticello a portion of any 2010 crop proceeds received by the Bank based on its status as the first lienholder. How else could the Bank have induced Monticello to make a loan but to guarantee it the right of first payment? Under these circumstances, treating a subordination of an interest differently from an assignment of that interest would add confusion to the law, not clarity, and would allow an intervening lienholder to obtain a windfall by becoming a senior lienholder through no action of his own,” Senior Judge Randall T. Shepard wrote. “Put another way, the agreement in this case is the functional and legal equivalent of a partial assignment. And in fact, such ‘partial subordination’ is the majority approach to subordination agreements.”

The appellate court rejected Co-Alliance’s claim that the court should adopt the approach that the bank’s lien drops to the end of the line based on the agreement. The COA instead adopted the majority rule, which allows for partial subordination of the first lienholder’s interest.

“The Bank could induce Monticello to finance the Clarks’ 2010 crops by giving Monticello its right to first payment. By virtue of the subordination agreement, Monticello would be paid first, but only up to the amount of the Bank’s senior claim, to which Co-Alliance was in any event junior. Co-Alliance would still receive what it expected to receive had there been no subordination agreement,” he wrote in Co-Alliance, LLP v. Monticello Farm Service, Inc., 91A05-1312-PL-607.
 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Not enough copperheads here to care anymore, is my guess. Otherwise, a totally pointless gesture. ... Oh wait: was this done because somebody want to avoid bad press - or was it that some weak kneed officials cravenly fear "protest" violence by "urban youths.."

  2. Should be beat this rap, I would not recommend lion hunting in Zimbabwe to celebrate.

  3. No second amendment, pro life, pro traditional marriage, reagan or trump tshirts will be sold either. And you cannot draw Mohammed even in your own notebook. And you must wear a helmet at all times while at the fair. And no lawyer jokes can be told except in the designated protest area. And next year no crucifixes, since they are uber offensive to all but Catholics. Have a nice bland day here in the Lego movie. Remember ... Everything is awesome comrades.

  4. Thank you for this post . I just bought a LG External DVD It came with Cyber pwr 2 go . It would not play on Lenovo Idea pad w/8.1 . Your recommended free VLC worked great .

  5. All these sites putting up all the crap they do making Brent Look like A Monster like he's not a good person . First off th fight actually started not because of Brent but because of one of his friends then when the fight popped off his friend ran like a coward which left Brent to fend for himself .It IS NOT a crime to defend yourself 3 of them and 1 of him . just so happened he was a better fighter. I'm Brent s wife so I know him personally and up close . He's a very caring kind loving man . He's not abusive in any way . He is a loving father and really shouldn't be where he is not for self defense . Now because of one of his stupid friends trying to show off and turning out to be nothing but a coward and leaving Brent to be jumped by 3 men not only is Brent suffering but Me his wife , his kids abd step kidshis mom and brother his family is left to live without him abd suffering in more ways then one . that man was and still is my smile ....he's the one real thing I've ever had in my life .....f@#@ You Lafayette court system . Learn to do your jobs right he maybe should have gotten that year for misdemeanor battery but that s it . not one person can stand to me and tell me if u we're in a fight facing 3 men and u just by yourself u wouldn't fight back that you wouldn't do everything u could to walk away to ur family ur kids That's what Brent is guilty of trying to defend himself against 3 men he wanted to go home tohisfamily worse then they did he just happened to be a better fighter and he got the best of th others . what would you do ? Stand there lay there and be stomped and beaten or would u give it everything u got and fight back ? I'd of done the same only I'm so smallid of probably shot or stabbed or picked up something to use as a weapon . if it was me or them I'd do everything I could to make sure I was going to live that I would make it hone to see my kids and husband . I Love You Brent Anthony Forever & Always .....Soul 1 baby

ADVERTISEMENT