## Facts

- Sand & Sage Farm & Ranch (Sand & Sage) purchased farm real estate in Kansas that was used as irrigated farm ground and included a center‑pivot irrigation setup on the land.
- To finance acquisition of the land, Sand & Sage (and/or its principals) granted a real estate mortgage to Farmers State Bank (later succeeded by Offerle National Bank) that covered the real estate and broadly included “improvements and fixtures” then on, or later placed on, the property.
- The mortgage was recorded in the county real estate records, giving public notice of the bank’s claim to the real estate and its fixtures.
- Years later, Sand & Sage executed a security agreement in favor of Ag Services of America (Ag Services) granting Ag Services a security interest in the debtor’s farm equipment and related personal property, which Ag Services treated as including the irrigation system and related components (including pumps and grain bins).
- Sand & Sage filed a Chapter 12 bankruptcy case and moved for authority to sell the farm property free and clear of liens under 11 U.S.C. § 363(f), with liens to attach to the sale proceeds.
- Ag Services objected to the proposed sale, contending it held a first‑priority lien (superior to the bank) in the irrigation system, pumps, and grain bins on the theory those items were “equipment,” not fixtures.
- The bankruptcy court held an evidentiary hearing to decide whether the disputed items were fixtures under Kansas law and, based on that classification, which creditor had priority.

## Issues

1. Whether the center‑pivot irrigation system (and related pumps and grain bins) was a fixture associated with the real estate under Kansas law and the Kansas UCC, or instead was personal property “equipment.”
2. If the irrigation system and related items were fixtures, whether Offerle National Bank’s recorded real estate mortgage had priority over Ag Services’ later Article 9 security interest.
3. Whether the court could authorize a sale under § 363(f) free and clear of both asserted interests, with liens attaching to the sale proceeds in the same order of priority.

## Decision

- The court determined the center‑pivot irrigation system was so connected with and used with the land that it constituted a fixture under Kansas law.
- Because the irrigation system was a fixture, the bank’s previously recorded mortgage—by its terms covering improvements and fixtures—was a prior perfected interest in the irrigation system as part of the mortgaged real estate.
- Ag Services’ objection, premised on having a first and prior lien in the irrigation system (and related components), was overruled.
- The court authorized the proposed sale free and clear of liens, with any valid liens to attach to the sale proceeds with the same validity, extent, and priority they had against the property before the sale.

## Legal Principles

- Under Kansas fixture law, whether goods become fixtures turns on (1) physical attachment to the real estate, (2) whether the goods are specially suited for the land’s use, and (3) the objective intent that the goods remain with the property as a lasting improvement.
- The Kansas UCC recognizes goods as fixtures when their attachment to real estate is such that a purchaser of the real estate would reasonably treat them as part of the real estate.
- A recorded real estate mortgage that expressly includes improvements and fixtures can create and perfect an interest in fixtures through real‑property recording; a later Article 9 security interest taken as “equipment,” without a fixture filing or other basis for priority, is generally junior as to collateral determined to be fixtures.
- A bankruptcy court may approve a sale under 11 U.S.C. § 363(f) free and clear of interests when the statutory requirements are met, and creditor protection is commonly provided by transferring liens from the assets to the sale proceeds in the same priority order.

## Conclusion

In *In re Sand & Sage Farm & Ranch*, the bankruptcy court resolved a priority dispute arising from a Chapter 12 sale motion by classifying the center‑pivot irrigation system (and related components) as a fixture under Kansas law, which placed it within the scope of the bank’s earlier recorded real estate mortgage and made the bank’s lien senior to Ag Services’ later equipment lien; the court overruled Ag Services’ objection and approved the sale free and clear with liens attaching to the proceeds according to their pre‑sale priority.


In re Sand & Sage Farm & Ranch, 266 B.R. 507 (2001)