Is a grain bin a fixture on a farm or is it a farmer’s personal property?
That is a question that is central to a Minnesota case.
The question is important to banks and other creditors in the case, with the decision affecting which creditors will be first in line for a share of the money from the sale of assets from Oberg Family Farms near Moorhead, Minnesota.
The Clay County District Court ruled that a grain bin would be considered personal property. But the Minnesota Court of Appeals ruled on Aug. 30 that the court made a mistake by even offering a ruling as part of a summary judgment and is sending the case back to district court, but with some guidance for the district court.
As part of its review, appeals court Judge Denise Reilly noted that there is no clear precedent in Minnesota case law on the question. But the appeals court examined similar cases, concluding: “We hold that whether a grain bin is personal property or a fixture is a fact-specific inquiry and the factfinder must determine the issue case-by-case.”
It also outlined four factors to determine whether the grain bin in question is a fixture or personal property:
- Whether the grain bin can be removed without leaving the real property in a substantially worse condition than before.
- Whether the grain bin can be removed without breaking it into pieces and damaging the grain bin itself.
- Whether the grain bin has any independent value once removed from the real property.
- The intent of the parties.
The Clay County District Court ruling had looked like a win for Bell Bank, which had financed Oberg farm operations using personal property, such as equipment, as security. It was a loss for American Federal Bank, which had loaned $1.6 million to the Oberg farm to move a large grain bin, obtaining mortgages on a parcel of land and its fixtures.
It also was a loss for Gateway Building Systems, which did not get paid for moving the bin to the Oberg farm.
American Federal and Gateway filed the appeal. Now Bell Bank is asking the Minnesota Supreme Court to look at the appeals court ruling.
The case behind the question
The Oberg farm had a piece of property, about 20 acres, it referred to as the “bin site,” where it stored equipment, crops and other assets. Bell Bank used the equipment and other assets stored there as security on loans to the farm.
Things got complicated when the Obergs decided to add another large bin to the farm.
In May 2018, Oberg farms reached out to Gateway Building Systems, a licensed contractor that sells and constructs grain storage.
Kevin Johnson of Gateway advised that there was an Iowa farm willing to give away a 132-foot diameter grain bin to anyone who would remove it.
To finance the bin move, Oberg farm went to American Federal Bank. American Federal did a title search that did not reveal any competing mortgages. Court documents say it is not clear why American Federal did not learn about Bell Bank’s involvement.
By December 2018, American Federal had made two loans to the Obergs totaling about $1.6 million, both mortgaged against the bin site’s property, buildings and fixtures.
In March 2019, Bell Bank would also obtain a mortgage against the bin site property.
Gateway moved the bin from Iowa and reconstructed it at the Oberg farm, sending the farm a bill for $280,000. CITYWide Electric, of West Fargo, North Dakota, which also worked on the bin, billed the Obergs for $47,575. Both Gateway and CITYWide would file liens on the Oberg property in 2019.
Later that year, the Oberg farm voluntarily agreed to forfeit assets to resolve it debts, though it did not file for bankruptcy. A court appointed Lighthouse Management Inc. to oversee the sale of farm assets with proceeds going to the creditors.
In September 2019, the district court approved the sale of the Oberg bin site to Gateway for $1.4 million. The money from the sale went to Lighthouse, which is where it remains while the key grain bin question remains unresolved.
The four main creditors in the bankruptcy, Bell Bank, American Federal, Gateway and CITYWide, asked Clay County District Court to provide a summary judgment.
The district court ruled the grain bin to be personal property and that the equipment and structures made up most of the value of the bin site. Since Bell Bank had used the personal property as security, it was first in line to benefit from the bankruptcy sale, ahead of American Federal.
The ruling gave Bell Bank 86.4% of the sale proceeds, with CITYWide getting enough to cover its bills and American Federal getting what was left.
Gateway was awarded nothing, in part because of another question in the case: Was Gateway acting as the general contractor in the case, or were Obergs?
American Federal and Gateway filed their appeal. The appeals court said the district should have never issued the summary judgment, because there were still issues of fact in the case, namely whether a grain bin is personal property or a fixed asset, and who was the general contractor.
Those questions go back before the Clay County District Court.