These cases present the question whether contractual liens
arising from certain federal loan programs take precedence over
private liens, absent a federal statute that sets priorities.
Resolution of this question requires determination of whether
federal or state law governs the conflicting claims, and, if
federal law applies, whether a uniform priority rule should be
fashioned or state commercial law should be incorporated as the
federal rule of decision. In No. 77-1359, the United States'
contractual lien secures a loan guaranteed by the Small Business
Administration (SBA) under the Small Business Act, which generally
does not specify priority rules to govern SBA security interests.
The private lien of respondent Kimbell Foods, Inc. (Kimbell), arose
from security agreements that were executed before the federal
guarantee and secured advances that Kimbell made after the federal
guarantee. Both the federal and private security interests, which
covered the same collateral, were perfected pursuant to Texas'
Uniform Commercial Code. The District Court found that the
Government's lien was superior to Kimbell's. In so ruling, it
applied the first-in-time and choateness doctrines, rules
originally developed to afford federal statutory tax liens special
priority over state and private liens where the governing statute
does not specify priorities. The Court of Appeals reversed the
District Court's judgment. While agreeing that federal law governed
the controversy, and that the "first in time, first in right"
priority principle controlled the competing claims, the court
refused to extend the choateness rule to situations in which the
Government was a voluntary lender. Instead, the Court of Appeals
fashioned a federal common law rule whereby the first lien to meet
Uniform Commercial Code perfection requirements achieved priority,
and held that, under this rule, Kimbell's lien was superior.
Although the Court of Appeals did not adopt Texas law, it did
determine that Texas law would also afford priority to Kimbell's
security interests. In No. 77-1644, a borrower obtained several
loans from the Farmers Home Administration (FHA) under the
Consolidated Farmers Home Administration Act of 1961 (now
Page 440 U. S. 716
redesignated the Consolidated Farm and Rural Development Act),
which does not establish rules of priority. To secure the loans,
the FHA obtained a security interest in the borrower's crops and
farm equipment, and perfected its interest by filing a standard
financing statement with Georgia officials. Subsequently,
respondent repaired the borrower's tractor on numerous occasions.
When the borrower failed to pay the repair bills, respondent
retained the tractor and acquired a lien therein under Georgia law.
After the borrower had filed for bankruptcy and had been discharged
from his debts, the United States instituted this action to obtain
possession of the tractor. The District Court granted summary
judgment for respondent, holding that the FHA had not properly
perfected its security interest because the financing statement
inadequately described the collateral; and that, even if the
description were sufficient, both federal and state law accorded
priority to respondent's lien. Affirming in part and reversing in
part, the Court of Appeals fashioned a federal rule, based on the
Model Uniform Commercial Code, to determine the validity of the
financing statement. It found the description of the collateral
adequate to perfect the FHA's security interest. As to the priority
question, the Court of Appeals rejected state law, as well as the
first-in-time and choateness doctrines. In their place the court
devised a special "federal commercial law rule" giving priority to
repairman's liens when the repairman continuously possesses the
property from the time his lien arises. The court concluded that,
under this rule, respondent's lien for only the final repair bill
took precedence over the FHA's security interest.
Held:
1. The priority of liens stemming from federal lending programs
must be determined with reference to federal law. Since both the
SBA and the FHA derive their authority to effectuate loan
transactions from specific Acts of Congress passed in the exercise
of a "constitutional function or power,"
Clearfield Trust Co.
v. United States, 318 U. S. 363,
318 U. S. 366,
their rights, as well, should derive from a federal source. That
the statutes authorizing these federal lending programs do not
specify the appropriate rule of decision in no way limits the reach
of federal law. Pp.
440 U. S.
726-727
2. Because a national rule is unnecessary to protect the federal
interests underlying the SBA and FHA loan programs, the relative
priority of private liens and consensual liens arising from the
programs is to be determined under nondiscriminatory state laws,
absent a congressional directive to the contrary. Pp.
440 U. S.
727-740.
(a) Incorporating state law to determine the rights of the
United States as against private creditors will in no way hinder
administration of the SBA and FHA loan programs. The agencies' own
operating
Page 440 U. S. 717
practices, which recognize that the Government's security
interests are controlled by the commercial law of each State, belie
the assertion that a uniform rule of priority is needed to avoid
the administrative burdens created by disparate state commercial
rules. Pp.
440 U. S.
729-733.
(b) Deference to customary commercial practices will not
conflict with the objectives of the lending programs. The SBA and
FHA loan programs are a form of social welfare legislation,
primarily designed to assist farmers and businesses that cannot
obtain funds from private lenders on reasonable terms. If Congress
had intended the private commercial sector, rather than taxpayers
in general, to bear the risks of default entailed by these public
welfare programs, it would have established a priority scheme
displacing state law. Since the Government is in substantially the
same position as private lenders when it extends funds under the
programs, the special status it seeks is unnecessary to safeguard
the public fisc. Pp.
440 U. S.
733-738.
(c) Rejecting well established commercial rules which have
proven workable over time could undermine the stability on which
the commercial community depends in making reliable evaluations of
risk. Absent concrete reasons for altering settled commercial
practices, the prudent course is to adopt the ready-made body of
state law as the federal rule of decision until Congress strikes a
different accommodation. Pp.
440 U. S.
739-740.
3. The judgment in No. 77-1359 is affirmed, since the Court of
Appeals found that Texas law gave preference to Kimbell's lien. The
judgment in No. 77-1644 is vacated, and the case is remanded for
determination of whether the FHA's financing statement is
sufficient under Georgia law, and whether Georgia treats
repairman's liens as superior to previously perfected consensual
liens. P.
440 U. S.
740.
No. 77-1359, 557 F.2d 491, affirmed; No. 77-1644, 563 F.2d 678,
vacated and remanded.
MARSHALL, J., delivered the opinion for a unanimous Court.
Page 440 U. S. 718
MR. JUSTICE MARSHALL delivered the opinion of the Court.
We granted certiorari in these cases to determine whether
contractual liens arising from certain federal loan programs take
precedence over private liens, in the absence of a federal statute
setting priorities. [
Footnote
1] To resolve this question, we must decide first whether
federal or state law governs the controversies, and, second, if
federal law applies, whether this Court should fashion a uniform
priority rule or incorporate state commercial law. We conclude that
the source of law is federal, but that a national rule is
unnecessary to protect the federal interests underlying the loan
programs. Accordingly, we adopt state law as the appropriate
federal rule for establishing the relative priority of these
competing federal and private liens.
I
A
No. 77-1359 involves two contractual security interests in the
personal property of O.K. Super Markets, Inc. Both interests were
perfected pursuant to Texas' Uniform Commercial Code (UCC).
[
Footnote 2] The United States'
lien secures a loan guaranteed by the Small Business Administration
(SBA). The private lien, which arises from security agreements that
preceded the federal guarantee, secures advances respondent made
after the federal guarantee.
In 1968, O.K. Super Markets borrowed $27,000 from
Page 440 U. S. 719
Kimbell Foods, Inc. (Kimbell), a grocery wholesaler. Two
security agreements identified the supermarket's equipment and
merchandise as collateral. The agreements also contained a standard
"dragnet" clause providing that this collateral would secure future
advances from Kimbell to O.K. Super Markets. Kimbell properly
perfected its security interests by filing financing statements
with the Texas Secretary of State according to Texas law.
In February, 199, O.K. Super Markets obtained a $300,000 loan
from Republic National Bank of Dallas (Republic). The bank accepted
as security the same property specified in Kimbell's 1968
agreements, and filed a financing statement with the Texas
Secretary of State to perfect its security interest. The SBA
guaranteed 90% of this loan under the Small Business Act, which
authorizes such assistance [
Footnote 3] but, with one exception, does not specify
priority rules to govern the SBA's security interests. [
Footnote 4]
O.K. Super Markets used the Republic loan proceeds to satisfy
the remainder of the 1988 obligation and to discharge an
indebtedness for inventory purchased from Kimbell on open account.
Kimbell continued credit sales to O.K. Super Markets until the
balance due reached $18,258.57 on January 15, 1971. Thereupon,
Kimbell initiated state proceedings against O.K. Super Markets to
recover this inventory debt.
Shortly before Kimbell filed suit, O.K. Super Markets had
defaulted on the SBA-guaranteed loan. Republic assigned its
security interest to the SBA in late December, 1970, and recorded
the assignment with Texas authorities on January 21, 1971. The
United States then honored its guarantee and paid
Page 440 U. S. 720
Republic $252,331.93 (90% of the outstanding indebtedness) on
February 3, 1971. That same day, O.K.Super Markets, with the
approval of its creditors, sold its equipment and inventory and
placed the proceeds in escrow pending resolution of the competing
claims to the funds. Approximately one year later, the state court
entered judgment against O.K. Super Markets, and awarded Kimbell
$24,445.37, representing the inventory debt, plus interest and
attorney's fees.
Kimbell thereafter brought the instant action to foreclose on
its lien, claiming that its security interest in the escrow fund
was superior to the SBA's. [
Footnote 5] The District Court held for the Government. On
determining that federal law controlled the controversy, the court
applied principles developed by this Court to afford federal
statutory tax liens special priority over state and private liens
where the governing statute does not specify priorities.
Kimbell Foods, Inc. v. Republic Nat. Bank of
Dallas, 401 F.
Supp. 316, 321-322 (ND Tex.1975).
See, e.g., United States
v. Security Trust & Sav. Bank, 340 U. S.
47 (1950);
United States v. Pioneer American Ins.
Co., 374 U. S. 84
(1963). [
Footnote 6] Under
these rules, the lien "first in time" is "first in right."
[
Footnote 7] However, to be
Page 440 U. S. 721
considered first in time, the nonfederal lien must be "choate,"
that is, sufficiently specific, when the federal lien arises.
[
Footnote 8] A state-created
lien is not choate until the "identity of the lienor, the property
subject to the lien, and the amount of the lien are established."
United States v. New Britain, 347 U. S.
81,
347 U. S. 84
(1954);
see United States v. Vermont, 377 U.
S. 351,
377 U. S. 358
(1964). Failure to meet any one of these conditions forecloses
priority over the federal lien, even if under state law the
nonfederal lien was enforceable for all purposes when the federal
lien arose.
Because Kimbell did not reduce its lien to judgment until
February, 1972, and the federal lien had been created either in
1969, when Republic filed its financing statement, or in 1971, when
Republic recorded its assignment, the District
Page 440 U. S. 722
Court concluded that respondent's lien was inchoate when the
federal lien arose. 401 F. Supp. at 324-325. Alternatively, the
court held that, even under state law, the SBA lien was superior to
Kimbell's claim because the future advance clauses in the 1968
agreements were not intended to secure the debts arising from O.K.
Super Market's subsequent inventory purchases.
Id. at
325-326.
The Court of Appeals reversed.
Kimbell Foods, Inc. v.
Republic Nat. Bank of Dallas, 557 F.2d 491 (CA5 1977). It
agreed that federal law governs the rights of the United States
under its SBA loan program,
id. at 498 n. 9, 503 n. 16,
and that the "first in time, first in right" priority principle
should control the competing claims.
Id. at 502-503.
However, the court refused to extend the choateness rule to
situations in which the Federal Government was not an involuntary
creditor of tax delinquents, but rather a voluntary commercial
lender.
Id. at 498, 500-502. Instead, it fashioned a new
federal rule for determining which lien was first in time, and
concluded that "in the context of competing state security
interests arising under the U.C.C.," the first to meet UCC
perfection requirements achieved priority.
Id. at 503.
[
Footnote 9]
The Court of Appeals then considered which lien qualified as
first perfected. Disagreeing with the District Court, the court
determined that, under Texas law, the 1968 security agreements
covered Kimbell's future advances, and that the liens securing
those advances dated from the filing of the security agreements
before the federal lien arose.
Id. at 491 198, 503. But
the Court of Appeals did not adopt Texas law. Rather, it proceeded
to decide whether the future advances should receive the same
treatment under federal common
Page 440 U. S. 723
law. After surveying three possible approaches, [
Footnote 10] the court held that Kimbell's
future advances dated back to the 1968 agreements, and therefore
took precedence over Republic's 1969 loan.
Id. at
503-505.
B
At issue in No. 77-1644 is whether a federal contractual
security interest in a tractor is superior to a subsequent
repairman's lien in the same property. From 1970 to 1972, Ralph
Bridges obtained several loans from the Farmers Home Administration
(FHA), under the Consolidated Farmers Home Administration Act of
1961. [
Footnote 11] Like the
Small Business Act, this statute does not establish rules of
priority. To secure the FHA loans, the agency obtained a security
interest in Bridges' crops and farm equipment, which it perfected
by filing a standard FHA financing statement with Georgia officials
on February 2, 1972. Bridges subsequently took his tractor to
respondent Crittenden for repairs on numerous occasions,
accumulating unpaid repair bills of over $1,600. On December 21,
1973, Bridges again had respondent repair the tractor, at a cost of
$543.81. When Bridges could not pay the balance of $2,151.28,
respondent retained the tractor and acquired a lien therein under
Georgia law. Ga.Code § 67-2003 (1978).
Page 440 U. S. 724
On May 1, 1975, after Bridges had filed for bankruptcy and had
been discharged from his debts, [
Footnote 12] the United States instituted this action
against Crittenden to obtain possession of the tractor. [
Footnote 13] The District Court
rejected the Government's claim that the FHA's security interest
was superior to respondent's, and granted summary judgment for
respondent on alternative grounds. First, it held that the agency
had not properly perfected its security interest, because the
financing statement inadequately described the collateral.
Civ.Action No. 75-37-COL (MD Ga. Sept. 25, 1975). Second, it found
that even if the description were sufficient, both federal and
state law accorded priority to respondent's lien.
Ibid.
The Court of Appeals affirmed in part and reversed in part. It
first ruled that
"the rights and liabilities of the parties to a suit arising
from FHA loan transactions must, under the rationale of the
Clearfield Trust doctrine, be determined with reference to
federal law."
563 F.2d 678, 680-681 (CA5 1977) (footnotes omitted).
See
Clearfield Trust Co. v. United States, 318 U.
S. 363 (1943). In fashioning a federal rule for
assessing the sufficiency of the FHA's financing statement, the
court elected to follow the Model UCC, rather than to incorporate
Georgia law. 563 F.2d at 681-682. And it determined that the
description of the collateral was adequate under the Model UCC to
perfect the FHA's security interest.
Id. at 682-683.
The Court of Appeals then addressed the priority question, and
concluded that neither state law nor the first-in-time,
first-in-right and choateness doctrines were appropriate to resolve
the conflicting claims.
Id. at 683-689. In their place,
the court devised a special "federal commercial law rule,"
using
Page 440 U. S. 725
the Model UCC and the Tax Lien Act of 1966 as guides.
Id. at 679, 688-690. [
Footnote 14] This rule would give priority to repairman'
liens over the Government' previously perfected consensual security
interests when the repairman continuously possesses the property
from the time his lien arises.
Id. at 690-691. [
Footnote 15] Applying its rule, the
Court of Appeals concluded that Crittenden's lien for only the
final $543.81 repair bill took precedence over the FHA's security
interest.
Id. at 692. [
Footnote 16]
Page 440 U. S. 726
II
This Court has consistently held that federal law governs
questions involving the rights of the United States arising under
nationwide federal programs. As the Court explained in
Clearfield Trust Co. v. United States, supra at
318 U. S.
366-367:
"When the United States disburses its funds or pays its debts,
it is exercising a constitutional function or power. . . . The
authority [to do so] had its origin in the Constitution and the
statutes of the United States, and was in no way dependent on the
laws [of any State]. The duties imposed upon the United States and
the rights acquired by it . . . find their roots in the same
federal sources. In absence of an applicable Act of Congress, it is
for the federal courts to fashion the governing rule of law
according to their own standards."
(Citations and footnote omitted.)
Guided by these principles, we think it clear that the priority
of liens stemming from federal lending programs must be determined
with reference to federal law. The SBA and FHA unquestionably
perform federal functions within the meaning of
Clearfield. Since the agencies derive their authority to
effectuate loan transactions from specific Acts of Congress passed
in the exercise of a "constitutional function or power,"
Clearfield Trust Co. v. United States, supra at
318 U. S. 366,
their rights, as well, should derive from a federal source.
[
Footnote 17] When
Page 440 U. S. 727
Government activities "aris[e] from and bea[r] heavily upon a
federal . . . program," the Constitution and Acts of Congress
"
require' otherwise than that state law govern of its own
force." United States v. Little Lake Misere Land Co.,
412 U. S. 580,
412 U. S. 592,
593 (1973). [Footnote 18] In
such contexts, federal interests are sufficiently implicated to
warrant the protection of federal law. [Footnote 19]
That the statutes authorizing these federal lending programs do
not specify the appropriate rule of decision in no way limits the
reach of federal law. It is precisely when Congress has not spoken
"
in an area comprising issues substantially related to an
established program of government operation,'" id. at
412 U. S. 593,
quoting Mishkin 800, that Clearfield directs federal
courts to fill the interstices of federal legislation "according to
their own standards." Clearfield Trust Co. v. United
States, 318 U.S. at 318 U. S. 367.
[Footnote 20]
Federal law therefore controls the Government's priority rights.
The more difficult task, to which we turn, is giving content to
this federal rule.
III
Controversies directly affecting the operations of federal
programs, although governed by federal law, do not inevitably
Page 440 U. S. 728
require resort to uniform federal rules.
See Clearfield
Trust Co. v. United States, supra at
318 U. S. 367;
United States v. Little Lake Misere Land Co., supra at
412 U. S.
594-595. Whether to adopt state law or to fashion a
nationwide federal rule is a matter of judicial policy
"dependent upon a variety of considerations always relevant to
the nature of the specific governmental interests and to the
effects upon them of applying state law."
United States v. Standard Oil Co., 332 U.
S. 301,
332 U. S. 310
(1947). [
Footnote 21]
Undoubtedly, federal programs that, "by their nature, are and must
be uniform in character throughout the Nation" necessitate
formulation of controlling federal rules.
United States v.
Yazell, 382 U. S. 341,
382 U. S. 354
(1966);
see Clearfield Trust Co. v. United States, supra
at
318 U. S. 367;
United Sates v. Standard Oil Co., supra, at
332 U. S. 311;
Illinois v. Milwaukee, 406 U. S. 91,
406 U. S. 105
n. 6 (1972). Conversely, when there is little need for a nationally
uniform body of law, state law may be incorporated as the federal
rule of decision. [
Footnote
22] Apart from considerations of uniformity, we must also
determine whether application of state law would frustrate specific
objectives of the federal programs. If so, we must fashion special
rules solicitous of those federal interests. [
Footnote 23] Finally, our choice of
Page 440 U. S. 729
law inquiry must consider the extent to which application of a
federal rule would disrupt commercial relationships predicated on
state law. [
Footnote 24]
The Government argues that effective administration of its
lending programs requires uniform federal rules of priority. It
contends further that resort to any rules other than first in time,
first in right and choateness would conflict with protectionist
fiscal policies underlying the programs. We are unpersuaded that,
in the circumstances presented here, nationwide standards favoring
claims of the United States are necessary to ease program
administration or to safeguard the Federal Treasury from defaulting
debtors. Because the state commercial codes "furnish convenient
solutions in no way inconsistent with adequate protection of the
federal interest[s],"
United States v. Standard Oil Co.,
supra at
332 U. S. 309,
we decline to override intricate state laws of general
applicability on which private creditors base their daily
commercial transactions.
A
Incorporating state law to determine the rights of the United
States as against private creditors would in no way hinder
administration of the SBA and FHA loan programs. In
United
States v. Yazell, supra, this Court rejected the argument,
similar to the Government's here, that a need for uniformity
precluded application of state coverture rules to an SBA loan
contract. Because SBA operations were "specifically and in great
detail adapted to state law," 382 U.S. at
382 U. S. 357,
the federal interest in supplanting "important
Page 440 U. S. 730
and carefully evolved state arrangements designed to serve
multiple purposes" was minimal.
Id. at
382 U. S. 353.
Our conclusion that compliance with state law would produce no
hardship on the agency was also based on the SBA's practice of
"individually negotiat[ing] in painfully particularized detail"
each loan transaction.
Id. at
382 U. S.
345-346. These observations apply with equal force here,
and compel us again to reject generalized pleas for uniformity as
substitutes for concrete evidence that adopting state law would
adversely affect administration of the federal programs.
Although the SBA Financial Assistance Manual on which this Court
relied in
Yazell is no longer "replete with admonitions to
follow state law carefully,"
id. at
382 U. S. 357
n. 35, SBA employees are still instructed to, and indeed do, follow
state law. [
Footnote 25] In
fact, a fair reading of the SBA Financial Assistance Manual, SOP
510 (SBA Manual), indicates that the agency assumes its security
interests are controlled to a large extent by the commercial law of
each State. [
Footnote 26]
Similarly, FHA regulations
Page 440 U. S. 731
exspressly incorporate state law. They mandate compliance with
state procedures for perfecting and maintaining valid security
interests, and highlight those rules that differ from State to
State.
E.g., 7 CFR §§ 1921.104(c)(1), 1921.105, 1921.106,
1921.107, 1921.10, 1921.111, 1930.5, 1930.8, 1930.9, 1930.14,
1930.17, 1930.27 (1978). [
Footnote 27] To ensure that employees are aware of new
developments, the FHA also issues "State supplements" to "reflect
any State statutory changes in its version of the UCC." §
1921.111(c);
see, e.g., §§ 1802.80, 1904.108(d),
1930.46(d)(3). Contrary to the Government's claim that the FHA
complies only with state procedural rules, Reply Brief for United
States in No 77-1644, p. 7, the agency's reliance on state law
extends to substantive requirements as well. Indeed, applicable
regulations
Page 440 U. S. 732
suggest that state rules determine the priority of FHA liens
when federal statutes or agency regulations are not controlling. 7
CFR §§ 1872.2(c), 1921.111(b), 1930.43, 1930.44, 1930.46(d)(1), (3)
(1978);
see also § 1955.15(d).
Thus, the agencies' own operating practices belie their
assertion that a federal rule of priority is needed to avoid the
administrative burdens created by disparate state commercial rules.
[
Footnote 28] The programs
already conform to each State's commercial standards. By using
local lending offices and employees who are familiar with the law
of their respective localities, [
Footnote 29] the agencies function effectively without
uniform procedures and legal rules.
Nevertheless, the Government maintains that requiring the
agencies to assess security arrangements under local law would
dictate close scrutiny of each transaction, and thereby impede
expeditious processing of loans. We disagree. Choosing responsible
debtors necessarily requires individualized selection procedures,
which the agencies have already implemented in considerable detail.
Each applicant's financial condition is evaluated under rigorous
standards in a lengthy process. [
Footnote 30] Agency employees negotiate personally with
borrowers, investigate property offered as collateral for
encumbrances, and
Page 440 U. S. 733
obtain local legal advice on the adequacy of proposed security
arrangements. [
Footnote 31]
In addition, they adapt the terms of every loan to the parties'
needs and capabilities. [
Footnote 32] Because each application currently receives
individual scrutiny, the agencies can readily adjust loan
transactions to reflect state priority rules, just as they consider
other factual and legal matters before disbursing Government funds.
As we noted in
United States v. Yazell, 382 U.S. at
382 U. S. 348,
these lending programs are distinguishable from "nationwide act[s]
of the Federal Government, emanating in a single form from a single
source." (Footnote omitted.) Since there is no indication that
variant state priority schemes would burden current methods of loan
processing, we conclude that considerations of administrative
convenience do not warrant adoption of a uniform federal law.
B
The Government argues that applying state law to these lending
programs would undermine its ability to recover funds disbursed,
and therefore would conflict with program objectives. In the
Government's view, it is difficult
"to identify a material distinction between a dollar received
from the collection of taxes and a dollar returned to the Treasury
on
Page 440 U. S. 734
repayment of a federal loan."
Brief for United States in No. 77-1359, p. 22. Therefore, the
agencies conclude, just as "the purpose of the federal tax lien
statute to insure prompt and certain collection of taxes" [
Footnote 33] justified our
imposition of the first-in-time and choateness doctrines in the tax
lien context, the federal interest in recovering on loans compels
similar legal protection of the agencies' consensual liens.
However, we believe significant differences between federal tax
liens and consensual liens counsel against unreflective extension
of rules that immunize the United States from the commercial law
governing all other voluntary secured creditors. These differences
persuade us that deference to customary commercial practices would
not frustrate the objectives of the lending programs.
That collection of taxes is vital to the functioning, indeed
existence, of government cannot be denied.
McCulloch
v. Maryland, 4 Wheat. 316,
17 U. S. 425,
428,
17 U. S. 431
(1819);
Springer v. United States, 102 U.
S. 586,
102 U. S. 594
(1881). Congress recognized as much over 100 years ago when it
authorized creation of federal tax liens. Act of July 13, 1866, ch.
184, § 9, 14 Stat. 107, recodified as amended in 26 U.S.C. §§
6321-6323. The importance of securing adequate revenues to
discharge national obligations justifies the extraordinary priority
accorded federal tax liens through the choateness and first-in-time
doctrines. By contrast, when the United States operates as a
money-lending institution under carefully circumscribed programs,
its interest in recouping the limited sums advanced is of a
different order. Thus, there is less need here than in the tax lien
area to invoke protective measures against defaulting debtors in a
manner disruptive of existing credit markets.
To equate tax liens with these consensual liens also
misperceives the principal congressional concerns underlying the
respective statutes. The overriding purpose of the tax lien
Page 440 U. S. 735
statute obviously is to ensure prompt revenue collection. The
same cannot be said of the SBA and FHA lending programs. [
Footnote 34] They are a form of
social welfare legislation, primarily designed to assist farmers
and businesses that cannot obtain funds from private lenders on
reasonable terms. [
Footnote
35] We believe that, had Congress intended the private
commercial sector, rather than taxpayers in general, to bear the
risks of default entailed by these public welfare programs, it
would have established a priority scheme displacing state law. Far
from doing so, both Congress and the agencies have expressly
recognized the priority of certain private liens over the agencies'
security interests, [
Footnote
36] thereby indicating that the extraordinary safeguards
applied in the tax lien area are unnecessary to maintain the
lending programs.
The Government's ability to safeguard its interests in
commercial dealings further reveals that the rules developed in the
tax lien area are unnecessary here, and that state priority rules
would not conflict with federal lending objectives. [
Footnote 37]
Page 440 U. S. 736
The United States is an involuntary creditor of delinquent
taxpayers, unable to control the factors that make tax collection
likely. In contrast, when the United States acts as a lender or
guarantor, it does so voluntarily, with detailed knowledge of the
borrower's financial status. The agencies evaluate the risks
associated with each loan, examine the interests of other
creditors, choose the security believed necessary to assure
repayment, and set the terms of every agreement. [
Footnote 38] By carefully selecting loan
recipients and tailoring each transaction with state law in mind,
the agencies are fully capable of establishing terms that will
secure repayment. [
Footnote
39]
Page 440 U. S. 737
The Government nonetheless argues that its opportunity to
evaluate the credit worthiness of loan applicants provides minimal
safety. Because the SBA and FHA make loans only when private
lenders will not, the United States believes that its security
interests demand greater protection than ordinary commercial
arrangements. We find this argument unconvincing. The lending
agencies do not indiscriminately distribute public funds and hope
that reimbursement will follow. SBA loans must be "of such sound
value or so secured as reasonably to assure repayment." 15 U.S.C. §
636(a) (7);
see 13 CFR § 120.2(c)(1) (1978). The FHA
operates under a similar restriction. 7 CFR § 1833.35 (1978). Both
agencies have promulgated exhaustive instructions to ensure that
loan recipients are financially reliable and to prevent improvident
loans. [
Footnote 40] The
Government therefore is in substantially the same position as
private lenders, and the special status it seeks is unnecessary to
safeguard the public fisc. Moreover, Congress' admonitions to
extend loans judiciously supports the view that it did not intend
to confer special privileges on agencies that enter the commercial
field. Accordingly, we agree with the Court of Appeals in No.
77-1359 that, "[a]s a quasi-commercial lender, [the Government]
does not require . . .
Page 440 U. S. 738
the special priority which it compels as sovereign" in its
tax-collecting capacity. 557 F.2d at 500.
The Federal Tax Lien Act of 1966, 80 Stat. 1125, as amended, 26
U.S.C. § 6323, provides further evidence that treating the United
States like any other lender would not undermine federal interests.
These amendments modified the Federal Government's preferred
position under the choateness and first-in-time doctrines, and
recognized the priority of many state claims over federal tax
liens. [
Footnote 41] In
enacting this legislation, Congress sought to "improv[e] the status
of private secured creditors" and prevent impairment of commercial
financing transactions by "moderniz[ing] . . . the relationship of
Federal tax liens to the interests of other creditors." S.Rep. No.
1708, 89th Cong., 2d Sess., 1-2 (1966);
see also H.R.Rep.
No. 1884, 89th Cong., 2d Sess., 35 (1966). This rationale has even
greater force when the Government acts as a moneylender. We do not
suggest that Congress' actions in the tax lien area control our
choice of law in the commercial lien context. But in fashioning
federal principles to govern areas left open by Congress, our
function is to effectuate congressional policy.
E.g., RFC v.
Beaver Count, 328 U. S. 204,
328 U. S.
209-210 (1946). To ignore Congress' disapproval of
unrestricted federal priority in an area as important to the
Nation's stability as taxation would be inconsistent with this
function. Thus, without a showing that application of state laws
would impair federal operations, we decline to extend to new
contexts extraordinary safeguards largely rejected by Congress.
Page 440 U. S. 739
C
In structuring financial transactions, businessmen depend on
state commercial law to provide the stability essential for
reliable evaluation of the risks involved.
Cf. National Bank v.
Whitney, 103 U. S. 99,
103 U. S. 102
(1881). However, subjecting federal contractual liens to the
doctrines developed in the tax lien area could undermine that
stability. Creditors who justifiably rely on state law to obtain
superior liens would have their expectations thwarted whenever a
federal contractual security interest suddenly appeared and took
precedence. [
Footnote
42]
Because the ultimate consequences of altering settled commercial
practices are so difficult to foresee, [
Footnote 43] we hesitate to
Page 440 U. S. 740
create new uncertainties, in the absence of careful legislative
deliberation. Of course, formulating special rules to govern the
priority of the federal consensual liens in issue here would be
justified if necessary to vindicate important national interests.
But neither the Government nor the Court of Appeals advanced any
concrete reasons for rejecting well established commercial rules
which have proven workable over time. Thus, the prudent course is
to adopt the ready-made body of state law as the federal rule of
decision until Congress strikes a different accommodation.
[
Footnote 44]
IV
Accordingly, we hold that, absent a congressional directive, the
relative priority of private liens and consensual liens arising
from these Government lending programs is to be determined under
nondiscriminatory state laws. In No. 77-1359, the Court of Appeals
found that Texas law gave preference to Kimbell's lien. We
therefore affirm the judgment in that case. Although the issue was
contested, the Court of Appeals in No. 77-1644 did not decide
whether and to what extent Georgia treats repairman's liens as
superior to previously perfected consensual liens. Nor did the
court assess the sufficiency of the FHA's financing statement under
Georgia law. Because
"[t]he federal judges who deal regularly with questions of state
law in their respective districts and circuits are in a better
position than we to determine how local courts would dispose of
[such] issues,"
Butner v. United States, ante at
440 U. S. 58
(footnote omitted), we vacate the judgment in No. 77-1694 and
remand for resolution of these issues.
So ordered.
* Together with No. 77-1644,
United States v. Crittenden,
dba Crittenden Tractor Co., also on certiorari to the same
court.
[
Footnote 1]
436 U.S. 903 (1978); 439 U.S. 817 (1978).
[
Footnote 2]
Tex.Bus. & Com.Code Ann. § 9.101
et seq.
(1968).
[
Footnote 3]
Section 7(a) of the Small Business Act, 72 Stat. 387, as
amended, 15 U.S.C. § 636(a)(1), permits extension of financial
assistance to small businesses when funds are "not otherwise
available on reasonable terms from non-Federal sources." The SBA
prefers to guarantee private loans, rather than to disburse funds
directly. § 636(a)(2); 13 CFR §§ 120.2(b)(1), 122.15(c) (1978).
[
Footnote 4]
See n 36,
infra.
[
Footnote 5]
Jurisdiction was premised on 28 U.S.C. § 2410.
[
Footnote 6]
The tax liens were authorized by 26 U.S.C. § 3670 (1952 ed.),
currently codified at 26 U.S.C. § 6321. This statute established
the time when the tax lien arose, 26 U.S.C. § 3671 (1952 ed.),
currently codified at 26 U.S.C. § 6322, and required the filing of
notice for the Lien to be valid against specified creditors. 26
U.S.C. § 3672 (1952 ed.), currently codified, as amended, at 26
U.S.C. § 6323(a). But until 1966, the statute did not specify
priority rules to resolve conflicts between federal tax liens and
rival liens. The Federal Tax Lien Act of 1966, 80 Stat. 1125, as
amended, 26 U.S.C. §§ 6323(b), (c), (d), (e), set specific
priorities to displace the doctrines that this Court had created.
See infra at
440 U. S.
738.
[
Footnote 7]
This well accepted common law principle for resolving lien
priority disputes,
See Rankin v.
Scott, 12 Wheat. 177,
25 U. S. 179
(1827);
United States v. New Britain, 347 U. S.
81,
347 U. S. 85-86
(1954), also underlies the Uniform Commercial Code's priority
structure.
See Uniform Commercial Code § 9312(5), 3 U.L.A.
85 (1979 pamphlet) (hereinafter Model UCC); J. White & R.
Summers, Uniform Commercial Code 905 (1972).
[
Footnote 8]
See, e.g., United States v. Security Trust & Sav.
Bank, 340 U. S. 47
(1950);
United States v. New Britain, supra at
347 U. S. 86;
United States v. Acri, 348 U. S. 211,
348 U. S. 213
(1955);
United States v. R. F. Ball Construction Co.,
355 U. S. 587
(1958) (per curiam);
United States v. Pioneer American Ins.
Co., 374 U. S. 84
(1963);
United States v. Vermont, 377 U.
S. 351,
377 U. S. 355
(1964);
United States v. Equitable Life Assurance Soc.,
384 U. S. 323,
384 U. S.
327-328 (1966).
This Court originally formulated the choate lien test to govern
conflicts arising under the federal insolvency statute, Rev.Stat. §
3466, 31 U.S.C. § 191, which awards the United States priority over
other creditors in collecting debts from insolvents. In theory, the
statute does not defeat liens that are choate at the time of
insolvency. But in practice, it has proved difficult for nonfederal
lienors to satisfy the strictures of the choateness test.
See
New York v. Maclay, 288 U. S. 290
(1933);
United States v. Texas, 314 U.
S. 480 (1941); United States v. Waddill, Holland &
Flinn, Inc.,
323 U. S. 353
(1945);
United States v. Gilbert Associates, Inc.,
345 U. S. 361
(1953).
The Court later applied the choateness doctrine outside the
insolvency context together with the first-in-time requirement to
give federal tax liens special priority.
See United States v.
Security Trust & Sav. Bank, supra at
340 U. S. 51.
For a discussion of the history of the choate lien test,
see Kennedy, The Relative Priority of the Federal
Government: The Pernicious Career of the Inchoate and General Lien,
63 Yale L.J. 905 (1954) (hereinafter Kennedy, Relative
Priority).
[
Footnote 9]
In so holding, the Court of Appeals refused to formulate a
federal doctrine of general applicability, "leav[ing] for another
day" questions involving the priority of other nonfederal liens,
such as state tax and mechanic's liens. 557 F.2d at 503 n. 15.
[
Footnote 10]
One approach afforded priority to liens intervening between
execution of a security agreement covering future advances and
extension of those advances. Another gave priority only to future
advances made before the advancing creditor received actual notice
of an intervening lien, while a third rule afforded priority
regardless of actual notice. The court rejected the first option
and found that Kimbell would prevail under either of the other two,
since it did not have notice of the SBA guarantee.
Id. at
503-504.
[
Footnote 11]
The statute, now redesignated the Consolidated Farm and Rural
Development Act,
see 86 Stat. 657, authorizes federal
financial assistance for farmers who are "unable to obtain
sufficient credit elsewhere to finance their actual needs at
reasonable rates and terms." 75 Stat. 307, as amended, 7 U.S.C. §
1922 (1976 ed., Supp. III).
[
Footnote 12]
Bridges' bankruptcy did not affect the relative priority of the
Government and respondent. The priority rights afforded the United
States under § 64a of the Bankruptcy Act do not defeat valid
preexisting liens.
See 11 U.S.C. § 104(a); 3A W. Collier,
Bankruptcy § 64.02[2] (14th ed.1975).
[
Footnote 13]
Jurisdiction was invoked under 28 U.S.C. § 1345.
[
Footnote 14]
Section 9-310 of the Model UCC provides:
"When a person in the ordinary course of his business furnishes
services or materials with respect to goods subject to a security
interest, a lien upon goods in the possession of such person given
by statute or rule of law for such materials or services takes
priority over a perfected security interest unless the lien is
statutory and the statute expressly provides otherwise."
Model UCC § 9-310 (1979 pamphlet). The Tax Lien Act of 1966
extends similar protection to repairmen:
"Even though notice of a [federak tax lien] has been filed, such
lien shall not be valid"
"
* * * *"
"With respect to tangible personal property subject to a lien
under local law securing the reasonable price of the repair or
improvement of such property, as against a holder of such a lien,
if such holder is, and has been, continuously in possession of such
property from the time such lien arose."
26 U.S.C. § 6323(b)(5).
[
Footnote 15]
The court found it unnecessary to determine whether the same
result would obtain under Georgia's Commercial Code. 563 F.2d at
688 n. 17, 689.
[
Footnote 16]
Other Courts of Appeals have adopted divergent approaches
regarding the priority of federal security interests arising from
loan programs.
Compare, e.g., Chicago Title Ins. Co. v. Sherred
Village Associates, 568 F.2d 217 (CA1 1978),
cert.
pending, No. 77-1611;
United States v. General Douglas
MacArthur Senior Village, Inc., 470 F.2d 675 (CA2 1972),
cert. denied sub nom. County of Nassau v. United States,
412 U.S. 922 (1973);
United States v. Oswald & Hess
Co., 345 F.2d 886 (CA3 1965);
Willow Creek Lumber Co. v.
Porter County Plumbing & Heating, Inc., 572 F.2d 588 (CA7
1978); United States v. Latrobe Construction Co., 246 F.2d 357
(CA8),
cert. denied, 355 U.S. 890 (1957);
T. H. Rogers
Lumber Co. v. Apel, 468 F.2d 14 (CA10 1972),
with, e.g.,
United States v. Gregory-Beaumont Equipment Co., 243 F.2d 591
(CA8 1957);
United States v. California-Oregon Plywood,
Inc., 527 F.2d 687 (CA9 1975).
See also United States v.
Union Livestock Sales Co., 298 F.2d 755 (CA4 1962);
United
States v. Kramel, 234 F.2d 577 (CA8 1956);
United States
v. Chappell Livestock Auction, Inc., 523 F.2d 840 (CA8 1975);
Bumb v. United States, 276 F.2d 729 (CA9 1960).
[
Footnote 17]
See United States v. Standard Oil Co., 332 U.
S. 301,
332 U. S.
305-306 (1947);
United States v. Seckiner,
397 U. S. 203,
397 U. S.
209-210 (1970); Friendly, In Praise of
Erie --
And of the New Federal Common Law, 39 N.Y.U.L.Rev. 383, 410 (1961);
see also Sola Electric Co. v. Jefferson Electric Co.,
317 U. S. 173,
317 U. S. 176
(1942);
Board of County Comm'rs v. United States,
308 U. S. 343,
308 U. S.
349-350 (1939).
[
Footnote 18]
See United States v. Security Trust & Sav. Bank,
340 U.S. at 49;
cf. United States v. Yazell, 382 U.
S. 341,
382 U. S. 356
(1966).
[
Footnote 19]
See United States v. Standard Oil Co., supra at
332 U. S.
305-307; Mishkin, The Variousness of "Federal Law":
Competence and Discretion in the Choice of National and State Rules
for Decision, 105 U.Pa.L.Rev. 797, 800, and n. 15 (1957)
(hereinafter Mishkin); Comment, Adopting State Law as the Federal
Rule of Decision: A Proposed Test, 43 U.Chi.L.Rev. 823, 825 (1976);
see also Bank of America Nat. Trust & Sav. Assn. v.
Parnell, 352 U. S. 29,
352 U. S. 33-34
(1956);
Miree v. DeKalb County, 433 U. S.
25,
433 U. S. 29,
433 U. S. 31-32
(1977).
[
Footnote 20]
See Board of County Comm'rs v. United States, supra at
308 U. S.
349-350;
National Metropolitan Bank v. United
States, 323 U. S. 454,
323 U. S. 456
(1945);
Holmberg v. Armbrecht, 327 U.
S. 392,
327 U. S. 395
(1946);
Moor v. County of Alameda, 411 U.
S. 693,
411 U. S.
701-702, and n. 12 (1973).
[
Footnote 21]
As explained by one commentator:
"Whether state law is to be incorporated as a matter of federal
common law . . . involves the . . . problem of the relationship of
a particular issue to a going federal program. The question of
judicial incorporation can only arise in an area which is
sufficiently close to a national operation to establish competence
in the federal courts to choose the governing law, and yet not so
close as clearly to require the application of a single nationwide
rule of substance."
Mishkin 805.
[
Footnote 22]
Miree v. DeKalb County, supra at
433 U. S. 28-29;
see RFC v. Beaver County, 328 U.
S. 204,
328 U. S.
209-210 (1946);
United States v. Brosnan,
363 U. S. 237,
363 U. S.
241-242 (1960);
United States v. Yazell, supra
at
382 U. S.
356-357;
Auto Workers v. Hoosier Cardinal
Corp., 383 U. S. 696,
383 U. S.
701-703 (1966).
[
Footnote 23]
See United States v. Allegheny County, 322 U.
S. 174,
322 U. S. 183
(1944);
RFC v. Beaver County, supra at
328 U. S.
209-210;
Auto Workers v. Hoosier Cardinal Corp,
supra at
383 U. S.
706-707;
Wallis v. Pan American Petroleum
Corp., 384 U. S. 63,
384 U. S. 68
(1966);
United States v. Little Lake Misere Land Co.,
412 U. S. 580,
412 U. S.
595-597 (1973);
Johnson v. Railway Express Agency,
Inc., 421 U. S. 454,
421 U. S.
465-466 (1975);
Miree v. DeKalb County, supra
at
433 U. S. 31-32;
Robertson v. Wegmann, 436 U. S. 584,
436 U. S.
590-593 (1978);
see also De Sylva v.
Ballentine, 351 U. S. 570,
351 U. S. 581
(1956).
[
Footnote 24]
See United States v. Brosnan, supra at
363 U. S.
241-242;
United States v. Yazell, supra at
382 U. S.
352-353;
Wallis v. Pan American Petroleum Corp.,
supra at
384 U. S. 68;
United States v. Little Lake Misere Land Co., supra at
412 U. S.
599-603.
[
Footnote 25]
The applicable regulations recognize that, "[i]n order to
implement and facilitate th[e] Federal loan programs," SBA offices
should comply with state law, in particular, with state procedural
requirements for obtaining enforceable security interests. 13 CFR §
101.1(d)(3) (1978). And the SBA routinely follows such rules, Tr.
of Oral Arg. in No. 77-1359, p. 43, as it did here by requiring
Republic to file a financing statement and a notice of assignment.
That the SBA conforms its transactions to state law is also
reflected in the security agreement between Republic and O.K. Super
Markets, approved by the SBA, which provided that the contract
would be construed according to Texas law and bound the parties'
assigns to this provision. App. in No. 77-1359, p. 68.
[
Footnote 26]
For example, the Manual stresses that the borrower's inventory
should be used as collateral only after careful consideration of
the protection afforded under state law:
"
Uniform Commercial Code -- Factor's Lien Law. Most
states have adopted the Uniform Commercial Code or Factor's Lien
Laws. Under such laws, it is possible to obtain a general lien
covering all existing and to-be-acquired inventory. Generally,
these statutes also provide that the lien may follow the accounts
receivable or proceeds resulting from the sale of the inventory. .
. . The loan specialist should inquire as to any prior liens
against either inventories or receivables. The lien obtained under
the Code (or Factor's Lien Laws) covering accounts receivable or
other proceeds resulting from the sale of the inventory is not
generally invalidated by the fact that the borrower thereafter
deals with the accounts receivable or proceeds as his own. . . .
However, a careful study should be made of borrower's credit
circumstances to determine the measures of control and supervision
to be imposed. . . . Although the collateral may not require close
supervision from inception, the security agreement should contain
provisions that borrower shall . . . comply with such other
servicing practices as are deemed necessary by counsel to safeguard
the collateral."
"Accounts receivable resulting from the sale of inventories
assigned to SBA prior to adoption of the Code in code states shall
be serviced in accordance with applicable local law existing prior
to the date of adoption of the Code. This is not necessary however,
if, in the opinion of counsel, servicing can be performed in a
manner permitted under the Code without adversely affecting SBA's
interest."
SBA Manual � 29(a)(4)(b) (1977).
See also n 25,
supra.
[
Footnote 27]
After publication of the 1978 Code of Federal Regulations, the
FHA began reorganizing its regulations to provide separate rules
for each loan program. Most provisions of 7 CFR cited throughout
this opinion have been recodified with modifications not relevant
here.
See, e.g., 43 Fed.Reg. 5504, 7978, 23986,
55882-55895, 56643-56647, 59078 (1978); 44 Fed.Reg. 1701,
4431-4458, 6354, 10979-10980 (1979). For convenience, we refer to
the 1978 version of the FHA regulations contained in 7 CFR.
[
Footnote 28]
The differences between the rules, moreover, are insignificant
in comparison with the similarities. All States except Louisiana
have enacted Art. . 9 of the UCC with minor variations.
See Model UCC 1-2 (1979 pamphlet). As Judge Friendly
observed in
United States v. Wagemitic Corp., 360 F.2d
674, 676 (CA2 1966):
"When the states have gone so far in achieving the desirable
goal of a uniform law governing commercial transactions, it would
be a distinct disservice to insist on a different one for the
segment of commerce, important but still small in relation to the
total, consisting of transactions with the United States."
[
Footnote 29]
See 13 CFR §§ 101.3, 101.7(a) (1978); 7 CFR §§
1800.1-1800.4 (1978).
[
Footnote 30]
See 13 CFR §§ 120.2(c),(d), as amended, 43 Fed.Reg.
3702 (1978); 13 CFR §§ 122.15, 122.16 (1978); SBA Manual �� 10, 11,
16-40; 7 CFR §§ 1801.2-1801.4, 1904.108, 1904.127, 1904.175,
1980.175 (1978).
[
Footnote 31]
See United States v. Yazell, 382 U.S. at
382 U. S.
344-346; 13 CFR §§ 101.2-1, 101.7(a), 122.16 (1978); SBA
Manual �� 16-17, 21(c), 23(a)-(f), 29(a)(8), 30(1), 31(b)(6); 7 CFR
§§ 1801.1-1801.4, 1801.11, 1921.107, 1930.5 (1978).
[
Footnote 32]
The Court of Appeals in No. 77-1644 believed that a uniform
federal law was necessary to determine the sufficiency of the FHA's
financing statement in part because the agency uses standard forms
with preprinted descriptions of collateral commonly taken as
security. 563 F.2d at 682. However, the form also has a blank space
for listing specific property.
See App. in No. 77-1644, p.
12 (Form FHA 440-25). And the FHA regulations advise that
individual descriptions be made, specifically when "major items of
equipment" are involved. 7 CFR §§ 1921.105(e)(1), (2) (1978). Since
the standard FHA forms leave spaces for recording the details of
each loan, the agency can take account of local law without
altering these materials.
See, e.g., App. in No. 77-1644,
p. 8 (Form FHA 4404).
[
Footnote 33]
United States v. Security Trust & Sav. Bank, 340
U.S. at
340 U. S.
51.
[
Footnote 34]
Congress did not delineate specific priority rules in either the
tax lien statute prior to 1966, the insolvency statute, or the
statutes authorizing these lending programs.
See nn.
6 and |
6 and S. 715fn8|>8,
supra. Accordingly, the
Government urges that we establish identical priority rules for all
three situations. This argument overlooks the evident distinction
between lending programs for needy farmers and businesses and
statutes created to guarantee receipt of debts due the United
States. We, of course, express no view on the proper priority rules
to govern federal consensual liens in the context of statutes other
than those at issue here.
[
Footnote 35]
See nn.
3 and |
3 and S. 715fn11|>11,
supra; 15 U.S.C. § 631 (1976 ed. and Supp. III)
(declaration of policy); 7 U.S.C. § 1921 (congressional findings);
43 Fed.Reg. 55883 (1978) (to be codified in 7 CFR § 1941.2); S.Rep.
No. 566, 87th Cong., 1st Sess., 1, 64 (1961); Hearings on H.R. 4384
before the House Committee on Agriculture, 78th Cong., 2d Sess.,
435 (1944).
[
Footnote 36]
A 1958 amendment to the Small Business Act subordinates SBA
liens to state and local property tax liens when the tax liens
would be superior to nonfederal security interests under state law.
72 Stat. 396, 15 U.S.C. § 646. The FHA has established by
regulation that purchase money security interests take priority
over previously arising FHA liens. 7 CFR § 1921.106 (1978);
see § 1930.44. In appropriate circumstances, the FHA also
subordinates its liens to interests that are junior under state
law. 7 U.S.C. § 1981(d) (1976 ed. and Supp. III);
see,
e.g., 7 CFR § 1930.30 (1978).
[
Footnote 37]
We reject the Government's suggestion that the choateness and
first-in-time doctrines are needed to prevent States from
"undercutting" the agencies' liens by creating "arbitrary" rules.
Brief for United States in No. 77-1359, pp. 24-25. Adopting state
law as an appropriate federal rule does not preclude federal courts
from excepting local laws that prejudice federal interests.
See, e.g., RFC v. Beaver County, 328 U.S. at
328 U. S. 210;
De Sylva v. Ballentine, 351 U.S. at
351 U. S. 581;
United States v. Little Lake Misere Land Co., 412 U.S. at
412 U. S. 596.
The issue here, however, involves commercial rules of general
applicability, based on codes that are remarkably uniform
throughout the Nation.
See n 28,
supra.
[
Footnote 38]
See nn.
30
31 supra.
[
Footnote 39]
The facts presented here demonstrate the ease with which the
agencies could have protected themselves. O.K. Super Markets
informed the SBA of Kimbell's security interests in the inventory.
Had the agency followed its guidelines and checked local records,
it would have discovered the 1968 security agreements Kimbell filed
with its financing statements.
See SBA Manual 29(a)(3),
(4), (8), 31(b)(6). Thus, the agency should have known that the
agreements secured future advances. The SBA was also informed in
the loan guarantee application that O.K. Super Markets intended to
discharge the debts it owed Kimbell from the Republic loan
proceeds.
See App. in No. 77-1359, p. 72. Additionally, as
a result of negotiations with O.K. Super Markets' creditors, the
SBA was aware that Kimbell would not guarantee any portion of the
Republic loan because it wanted its account paid in full before
advancing further credit.
Id. at 62-63. In these
circumstances, the SBA easily could have persuaded Kimbell either
to subordinate its liens covering future advances or to terminate
the 1968 security arrangements once the obligations were satisfied.
This procedure, moreover, would have comported with agency
practices. The SBA Manual allows employees to impose conditions on
third parties when "advisable," and to note such agreements on the
appropriate forms.
Id., � 30(e).
With respect to the FHA loan, the agency could have followed the
practices of private lenders in protecting themselves from
subsequent liens that take priority under state law. For example,
the FHA might have secured its loan with property not subject to
repairman's liens or demanded more substantial collateral.
[
Footnote 40]
E.g., 13 CFR § 120.2, as amended, 43 Fed.Reg. 3702
(1978); 13 CFR §§ 122.2, 122.3 (1978); SBA Manual �� 5-7; nn.
30 31 supra.
[
Footnote 41]
See nn.
6 and |
6 and S. 715fn8|>8,
supra. Of particular relevance here, the Act added
mechanic's liens to the list of private interests already protected
against unrecorded tax liens. 26 U.S.C. § 6323(a). Holders of
consensual security interests also receive priority over unrecorded
tax liens.
Ibid. Moreover, the Act gives priority to many
types of nonfederal liens even when the Government has filed notice
of the tax lien. § 6323(b). Included in this group are repairman's
liens in personal property, § 6323(b)(5),
see 6 and S. 715fn14|>n. 14,
supra, and in limited situations, liens securing future
advances. § 6323(c).
[
Footnote 42]
The cases under consideration illustrate the substantial new
risks that creditors would encounter. Neither the financing
statement filed by Republic nor its security agreement mentioned
the SBA. App. in No. 77-1359, pp. 67-69. To give the federal lien
priority in this situation would undercut the reliability of the
notice filing system, which plays a crucial role in commercial
dealings. Subsequent creditors such as Crittenden and prior
creditors such as Kimbell would have no trustworthy means of
discovering the undisclosed security interest. Even those creditors
aware of a federal agency's lien would have to adjust their lending
arrangements to protect against the stringent choateness
requirements. In recognition of these burdens, commentators have
criticized the doctrine for frustrating private creditors'
expectations, as well as generating inconsistencies in application.
See, e.g., 2 G. Gilmore, Security Interests in Personal
Property 1052-1073 (1965); Plumb, Federal Liens and Priorities --
Agenda for the Next Decade, 77 Yale L.J. 228 (1967); Kennedy, From
Spokane County to Vermont: The Campaign of the Federal Government
Against the Inchoate Lien, 50 Iowa L.Rev. 724 (1965); Kennedy,
Relative Priority; Comment, The Relative Priority of Small Business
Administration Liens: An Unreasonable Extension of Federal
Preference?, 64 Mich.L.Rev. 1107 (1966).
Considerable uncertainty would also result from the approach
used in the opinions below. Developing priority rules on a
case-by-case basis, depending on the types of competing private
liens involved, leaves creditors without the definite body of law
they require in structuring sound business transactions.
[
Footnote 43]
For example, the decision below in No. 77-1359 noted that
priority rules favoring the Government could inhibit private
lenders' extension of credit to the very people for whom Congress
created these programs. 557 F.2d at 500.
See MacLachlan,
Improving the Law of Federal Lien and Priorities, 1 B.C.Ind. and
Com.L.Rev. 73, 74-76 (1959).
[
Footnote 44]
See RFC v. Beaver County, 328 U.S. at
328 U. S.
209-210;
United States v. Brosnan, 363 U.S. at
363 U. S. 242;
United States v. Yazell, 382 U.S. at
382 U. S. 352,
and nn. 26-27;
Wallis v. Pan American Petroleum Corp., 384
U.S. at
384 U. S.
68.