## Facts

- Michael Montagne ran a dairy operation through Montagne Heifers, Inc. (MHI) and later filed for Chapter 12 bankruptcy protection.
- In 2005, Ag Venture Financial Services, Inc. (Ag Venture) lent MHI $457,000 under a loan agreement and a security agreement granting Ag Venture a security interest in all livestock and the sale proceeds of any livestock.
- Ag Venture did not file a UCC financing statement at the time of the 2005 transaction.
- In 2006, Michael and his wife, Diane Montagne, separated; their separation agreement did not give Diane any stated right or security interest in MHI’s livestock or livestock-sale proceeds.
- In September 2007, Ag Venture released Diane from personal liability on the MHI debt.
- On November 13, 2007, Diane filed a UCC financing statement naming MHI and claiming a security interest in MHI’s livestock and livestock-sale proceeds, without an identified security agreement from MHI granting her that interest.
- On November 20, 2007, Michael executed a $100,000 promissory note payable to John Montagne as consideration for Michael’s purchase of John’s shares in MHI, and Michael executed a security agreement in John’s favor covering all farm inventory and proceeds.
- On November 24, 2007, Michael sold a herd of MHI cows for about $500,000.
- On November 28, 2007, Michael paid Diane $240,000 by check from the livestock-sale proceeds.
- On November 30, 2007, Ag Venture filed a UCC financing statement covering its 2005 security interest.
- On December 4, 2007, John filed a UCC financing statement covering his November 20, 2007 security interest.
- In the bankruptcy case, Ag Venture, Diane, and John disputed who had priority to the $240,000 check (and related proceeds), and Ag Venture and John sought summary judgment on priority.

## Issues

1. Whether Ag Venture had an enforceable Article 9 security interest in MHI’s livestock and livestock-sale proceeds, and whether it had priority in the $240,000 proceeds paid to Diane.
2. Whether Diane’s November 13, 2007 financing statement reflected an attached and perfected security interest that could take priority over Ag Venture’s claim to the proceeds.
3. Whether John’s security interest from the stock-purchase transaction qualified as a purchase-money security interest (or otherwise took priority), and whether his priority could be based on the date of his security agreement rather than the date he filed his financing statement.
4. Whether Ag Venture waived or lost its lien rights in the proceeds by releasing Diane from personal liability or by filing its financing statement after the cattle were sold.

## Decision

- The court ruled that Ag Venture had priority in the disputed proceeds and granted relief consistent with Ag Venture’s priority position.
- Ag Venture’s 2005 security agreement created an enforceable security interest that attached to MHI’s livestock and to the proceeds of livestock sales.
- Diane’s financing statement, standing alone, did not establish that she had an attached security interest in the livestock or proceeds; without an underlying security agreement granting her rights in the collateral, her filing could not defeat Ag Venture’s claim.
- John’s interest did not obtain special purchase-money priority based on the stock-buyout transaction, and his priority could not “relate back” to the date of his security agreement to defeat a competing secured party under Article 9’s priority rules.
- Ag Venture’s release of Diane as an obligor did not release Ag Venture’s lien on the collateral or proceeds, absent an express collateral release.
- Ag Venture’s filing after the cattle sale did not, on these facts, subordinate Ag Venture to Diane or John in the identifiable proceeds at issue in the creditor-to-creditor priority contest.

## Legal Principles

- A security interest is enforceable against the debtor and third parties upon attachment: value given, the debtor’s rights in the collateral, and an authenticated security agreement that reasonably describes the collateral.
- A financing statement is a notice filing; it does not by itself create a security interest or prove attachment without a supporting security agreement.
- Priority among competing Article 9 security interests is generally governed by the “first to file or perfect” rule, measured by the earlier of filing a financing statement or otherwise perfecting the security interest, so long as attachment occurs.
- Purchase-money security interest status is limited to obligations that enable the debtor to acquire rights in the specific collateral; a loan used to buy equity interests (stock) does not, by itself, create a PMSI in farm inventory, livestock, or their proceeds.
- A secured party’s release of one obligor from personal liability does not release the lien on collateral or proceeds unless the secured party clearly releases the collateral.
- A security interest in collateral can continue in identifiable proceeds of a disposition of that collateral, subject to Article 9’s proceeds and priority rules.

## Conclusion

In re Montagne held that Ag Venture’s security interest, created by its 2005 security agreement covering MHI’s livestock and livestock-sale proceeds and later perfected by filing, had priority to the $240,000 proceeds paid to Diane. Diane’s earlier financing statement did not establish an attached security interest without a security agreement, and John’s later-filed interest from a stock-purchase transaction did not qualify for purchase-money priority or defeat Ag Venture under Article 9’s priority framework.


In re Montagne, 417 B.R. 214 (2009)