Capital Briefs: Kansas High Court Backs Bank on Collateral

WASHINGTON - The Kansas Supreme Court made it easier this month for bankers to protect their collateral on loans to farmers.

The court, in the first case of its kind, said bankers don't invalidate their lien on crops just by committing minor errors on a legal form they must file.

Thomas Greco, associate general counsel at the American Bankers Association, said the decision protects agricultural lenders, who could have lost their hold on collateral. "It prevents someone from taking advantage of minor errors," he said.

The decision interprets the Food Security Act of 1985, which requires bankers to notify the public of their interest in farm products.

The law's intent was to prevent banks from seizing crops under lien that had already been sold to a third party. Bankers only can take the crops if they have filed notice of their interest at a central depository or if they have sent a copy of the notice to the prospective buyer.

In the Kansas case, a co-op had received the notice but bought the crop anyway. It argued that the notice hadn't met the letter of the law because it didn't specify which crops were under lien.

But the court rejected that argument, saying the notice was clear enough.

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