## Facts

- Agrifund, LLC loaned money to Leslie and Jennifer Gary to finance farming operations and took a security interest in, among other collateral, the Garys’ crops and proceeds.
- Agrifund perfected its security interest by filing UCC-1 financing statements with the Texas Secretary of State.
- The Garys defaulted on Agrifund’s debt when payment was not made at maturity in March 2018.
- In May 2018, First State Bank of Shallowater loaned money to the Garys for the 2018 crop year; loan proceeds were used to buy cotton seed and chemicals.
- The Bank took a security interest in all crops grown or to be grown for the 2018 crop year (and other collateral) and perfected by filing a UCC-1 in June 2018.
- After the 2018 cotton crop was harvested and sold, the buyer/marketer issued eight checks payable in varying combinations to the Garys, Agrifund, and the Bank; Agrifund was a payee on all eight and the Bank on four.
- The Bank demanded release of funds, asserting a purchase-money security interest (PMSI) with priority in the 2018 crop and proceeds; Agrifund refused, relying on its earlier filing.
- The trial court granted summary judgment for the Bank on priority and denied attorney’s fees; Agrifund appealed.

## Issues

1. Whether a lender that finances seed and chemicals used to grow a crop holds a PMSI in the harvested crop and its proceeds.
2. Whether, under Texas UCC priority rules, the Bank’s claimed PMSI could defeat Agrifund’s earlier-perfected crop lien.
3. Whether the trial court erred by declaring the Bank’s security interest broadly superior as to the disputed crop proceeds.

## Decision

- The appellate court held the general first-to-file rule favored Agrifund because Agrifund filed and perfected before the Bank.
- The court rejected the Bank’s broad theory that financing inputs (seed and chemicals) automatically created a PMSI with super-priority in the resulting harvested cotton crop and its proceeds.
- The court concluded any PMSI priority was limited to collateral actually acquired with the Bank’s funds (and any statutorily recognized proceeds), not the entire crop merely because inputs were financed.
- The court reversed and rendered in part, affirmed in part, and remanded for further proceedings consistent with the limited PMSI analysis.

## Legal Principles

- Between competing security interests perfected by filing in the same collateral, priority generally goes to the party that first files or perfects.
- A PMSI is a limited exception that applies when credit enables the debtor to acquire identified collateral and the creditor takes a security interest in that acquired collateral.
- Financing agricultural inputs does not, without statutory support, convert the lender’s interest into a PMSI super-priority in the later-grown harvested crop as “goods” merely because the crop depended on those inputs.
- Extending PMSI super-priority beyond purchased goods to downstream biological products would erode the predictability of first-to-file priority in secured lending.

## Conclusion

The court limited PMSI priority in the agricultural context by holding that input financing for seed and chemicals did not confer PMSI super-priority in the harvested crop and its proceeds; absent a valid and applicable PMSI exception, Agrifund’s earlier-perfected crop lien controlled, and the case was remanded to resolve remaining matters consistent with that priority framework.


Agrifund, LLC v. First State Bank of Shallowater, 662 S.W.3d 523 (Tex. App.—Amarillo 2022)