Our bank holds perfected liens in a farm loan customer’s assets, including its crops. The customer sold its crops to a grain elevator, which paid the sale proceeds to our bank, as the secured creditor. We have learned that the customer missed its rent payment for the farmland, which was due at the beginning of this month. Can the landlord assert a lien for the rent, after our bank has taken the crop sale proceeds and applied them to the customer’s loan?

We believe that the landlord’s lien should have taken priority over your bank’s perfected liens in the crops and sale proceeds. In Illinois, landlords have a lien in crops grown on their land, and the lien has priority over any Uniform Commercial Code (UCC) liens. Consequently, the landlord’s lien has priority over your banks’ lien in the crops.

The landlord was required to notify the grain elevator of its lien — a landlord must “provide written notice of his lien to the [crops’] purchaser by registered or certified mail.” Because the purchaser here issued checks to your bank, it appears that the landlord failed to notify the grain elevator of its lien. However, we are aware of at least one Illinois court holding that a grain elevator must make a “reasonable inquiry,” and that knowledge of a landlord’s lien may be imputed on a grain elevator purchasing crops that it knows were grown on leased land.

Importantly, at least one Illinois court has held both a bank lender and a grain elevator liable for the elevator’s failure to apply grain sale proceeds to a landlord’s crop lien. We recommend consulting with bank counsel to determine your bank’s potential liability to the landlord.

For resources related to our guidance, please see:

Illinois Code of Civil Procedure, 735 ILCS 5/9-316 (“Every landlord shall have a lien upon the crops grown or growing upon the demised premises for the rent thereof . . . . Such lien shall continue for the period of 6 months after the expiration of the term for which the premises are demised, and may be enforced by distraint as provided in Part 3 of Article IX of this Act. . . .”)

Illinois Code of Civil Procedure, 735 ILCS 5/9-316 (“A good faith purchaser shall, however, take such crops free of any landlord's lien unless, within 6 months prior to the purchase, the landlord provides written notice of his lien to the purchaser by registered or certified mail. Such notice shall contain the names and addresses of the landlord and tenant, and clearly identify the leased property. . . . A lien arising under this Section shall have priority over any agricultural lien as defined in, and over any security interest arising under, provisions of Article 9 of the Uniform Commercial Code.”)

Farmers Grain and Supply Co. v. Skinner, 161 Ill.App.3d 201, 202 (“The sole issue in dispute is whether a landlord’s statutory crop lien for rent has priority over an article 9 security interest in proceeds from the sale of crops grown on the leased farm land. We find that it does.”)

Panaco Corp. v. Standard Co-op. Elevator Co., 56 Ill.App.3d 1005, 1006–1007 (“From the testimony it is clear [the grain elevator’s] manager knew he was dealing with grain grown on leased land and with a tenant farmer of a corporate entity, although he never bothered to ascertain the exact identity of the landlord, though he was under a duty to do so. . . . Defendant did not make reasonable inquiry of the landlord in order to stand in the shoes of a bona fide purchaser against the landlord’s lien.”)

Dwyer v. Cooksville Grain Co., 117 Ill.App.3d 1001, 1005 (“[W]e find that the adoption of Article 9 in Illinois has not diminished the paramount nature of the landlord’s crop lien. It still has superiority over all other interests, including those created under Article 9. . . . Affirmed and remanded with directions to the circuit court to apportion the liability for the total $60,000 judgment between the bank and [the grain purchaser].”)