United States v. Kimbell Foods, Inc.

Supreme Court of the United States · 1979 · Federal Courts

Federal Courtsfederal common lawfederal lending programslien priorityClearfield doctrinefederal common lawstate law incorporationSBA

Facts

In No. 77-1359, Kimbell had earlier perfected Texas UCC security interests in a supermarket's inventory and equipment, including a dragnet clause for future advances; later, a bank made an SBA-guaranteed loan secured by the same property, and the SBA ultimately received the bank's interest after default. Kimbell continued extending credit, obtained judgment, and claimed priority in an escrow fund from the sale of the collateral. In No. 77-1644, the FHA had filed a financing statement covering a farmer's farm equipment, including a tractor; afterward, a repairman repaired the tractor, retained possession when unpaid, and acquired a lien under Georgia law. The United States sued to recover the tractor, asserting that the FHA lien was superior.

Issue

When federal statutes authorizing SBA and FHA lending do not specify priority rules, does federal or state law govern the priority of consensual federal liens against private liens? If federal law governs, should courts create a uniform federal priority rule or adopt state commercial law as the federal rule of decision?

Rule

Questions involving the rights of the United States under nationwide federal programs are governed by federal law. But absent a congressional directive, the relative priority of private liens and consensual liens arising from these federal lending programs is determined under nondiscriminatory state laws incorporated as the federal rule of decision, unless a uniform federal rule is needed because of the nature of the federal interest, because state law would frustrate specific federal objectives, or because some other federal interest requires displacement of state law.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Pine Mesa Lending, a federal farm-credit program office in Kansas, took a consensual security interest in Dana Ruiz's combines to secure a federally authorized operating loan. Later, Red River Supply, a private creditor, claimed a competing lien under Kansas commercial law, and the governing federal statute says nothing about lien priority.

Which statement best describes the source of law a court should use to resolve the priority dispute?

Explanation. The majority held that rights of the United States arising under nationwide federal lending programs are governed by federal law under Clearfield-type reasoning. But that does not mean courts must invent a uniform national rule or give the Government automatic priority. Absent congressional direction, courts ordinarily incorporate nondiscriminatory state commercial law as the federal rule of decision.