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Arkansas Code Annotated

Ark. Code Ann. § 4-9-334 (2020)

Priority of security interests in fixtures and crops

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  1. A security interest under this chapter may be created in goods that are fixtures or may continue in goods that become fixtures. A security interest does not exist under this chapter in ordinary building materials incorporated into an improvement on land.
  2. This chapter does not prevent creation of an encumbrance upon fixtures under real property law.
  3. In cases not governed by subsections (d)-(h), a security interest in fixtures is subordinate to a conflicting interest of an encumbrancer or owner of the related real property other than the debtor.
  4. Except as otherwise provided in subsection (h), a perfected security interest in fixtures has priority over a conflicting interest of an encumbrancer or owner of the real property if the debtor has an interest of record in or is in possession of the real property and:
    1. the security interest is a purchase-money security interest;
    2. the interest of the encumbrancer or owner arises before the goods become fixtures; and
    3. the security interest is perfected by a fixture filing before the goods become fixtures or within twenty (20) days thereafter.
  5. A perfected security interest in fixtures has priority over a conflicting interest of an encumbrancer or owner of the real property if:
    1. the debtor has an interest of record in the real property or is in possession of the real property and the security interest:
      1. is perfected by a fixture filing before the interest of the encumbrancer or owner is of record; and
      2. has priority over any conflicting interest of a predecessor in title of the encumbrancer or owner;
    2. before the goods become fixtures, the security interest is perfected by any method permitted by this chapter and the fixtures are readily removable:
      1. factory or office machines;
      2. equipment that is not primarily used or leased for use in the operation of the real property; or
      3. replacements of domestic appliances that are consumer goods;
    3. the conflicting interest is a lien on the real property obtained by legal or equitable proceedings after the security interest was perfected by any method permitted by this chapter; or
    4. the security interest is:
      1. created in a manufactured home in a manufactured-home transaction; and
      2. perfected pursuant to a statute described in § 4-9-311(a)(2).
  6. A security interest in fixtures, whether or not perfected, has priority over a conflicting interest of an encumbrancer or owner of the real property if:
    1. the encumbrancer or owner has, in an authenticated record, consented to the security interest or disclaimed an interest in the goods as fixtures; or
    2. the debtor has a right to remove the goods as against the encumbrancer or owner.
  7. The priority of the security interest under paragraph (f)(2) continues for a reasonable time if the debtor's right to remove the goods as against the encumbrancer or owner terminates.
  8. A mortgage is a construction mortgage to the extent that it secures an obligation incurred for the construction of an improvement on land, including the acquisition cost of the land, if a recorded record of the mortgage so indicates. Except as otherwise provided in subsections (e) and (f), a security interest in fixtures is subordinate to a construction mortgage if a record of the mortgage is recorded before the goods become fixtures and the goods become fixtures before the completion of the construction. A mortgage has this priority to the same extent as a construction mortgage to the extent that it is given to refinance a construction mortgage.
  9. A perfected security interest in crops growing on real property has priority over a conflicting interest of an encumbrancer or owner of the real property if the debtor has an interest of record in or is in possession of the real property.

History. Acts 2001, No. 1439, § 1.

Case Notes

Encumbrances.

An encumbrancer is one who holds a burden, charge, or lien on property or an estate to the diminution of the value of the fee, but which does not prevent the passing of the fee by conveyance. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979) (decision under prior law).

Where the person making the annexation was the owner of the realty; the realty was being used as a grain storage facility and the chattels in question were grain storage bins; the bins were assembled and erected on the realty and this installation involved the pouring of a concrete slab with bolts imbedded in it, the facility had become a fixture. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979) (decision under prior law).

Filing.

A purchase money security interest in equipment which became fixtures must meet the filing requirements of former § 4-9-401(1)(b) to have priority over prior encumbrances of the real estate. United States v. Baptist Golden Age Home, 226 F. Supp. 892 (W.D. Ark. 1964) (decision under prior law).

Fixtures.

Unless the facts are undisputed and reasonable minds could only reach one conclusion, the question whether particular property constitutes a fixture is sometimes one of fact only, but usually is a mixed question of law and fact. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979) (decision under prior law).

The basic rules under the pre-2001 version of this chapter for determining whether an article remains a chattel or becomes a fixture are: (1) real or constructive annexation to the realty in question; (2) appropriation or adaptation to the use or purpose of that part of the realty with which it is connected; and (3) the intention of the party making the annexation to make a permanent accession to the realty, this intention being inferred from the nature of the chattel, the relation and situation of the party making the annexation, the structure and mode of annexation, and the purpose for which the annexation has been made. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979); In re Hot Shots Burgers & Fries, Inc., 147 B.R. 484 (Bankr. E.D. Ark. 1992) (decisions under prior law).

The inference is strong, where the party attaching the “fixture” is the owner of the soil, that it was intended to become a part of the soil and not a removable fixture, and to overturn it, there must be strong evidence of a contrary intention manifested by some act or circumstance. Corning Bank v. Bank of Rector, 265 Ark. 68, 576 S.W.2d 949 (1979) (decision under prior law).

A building constructed on the land of another with the owner's consent, may remain the property of the person annexing the building if there is an understanding, either expressed or implied, that the building under the pre-2001 version of this chapter shall remain personalty, or there is an express reservation of a right to remove the building. In re Hot Shots Burgers & Fries, Inc., 147 B.R. 484 (Bankr. E.D. Ark. 1992) (decision under prior law).

When no understanding exists as to the right of removal of the building, a determination must be made as to whether the building has become a “fixture”; a fixture is defined under the pre-2001 version of this chapter as property annexed to the freehold for use in connection therewith and so arranged that it cannot be removed without injury to the freehold. In re Hot Shots Burgers & Fries, Inc., 147 B.R. 484 (Bankr. E.D. Ark. 1992) (decision under prior law).

Where a debtor annexed a building on the real property for the sole purpose of operating his business, and the building was not annexed with the intention of making the building a permanent addition to the realty, under the pre-2001 version of this chapter the building also constituted a trade fixture and remained personal property. In re Hot Shots Burgers & Fries, Inc., 147 B.R. 484 (Bankr. E.D. Ark. 1992) (decision under prior law).

Arkansas courts have adopted a three-part test to determine whether an item is a fixture under the pre-2001 version of this chapter: (1) whether the item is annexed to the realty; (2) whether the item is appropriate and adapted to the use or purpose of that part of the realty to which the item is connected; and (3) whether the party making annexation intended to make it permanent. Rice v. Fas Fax Corp. (In re Hot Shots Burgers & Fries, Inc.), 169 B.R. 920 (Bankr. E.D. Ark. 1994) (decision under prior law).

Modular building held not to be a permanent fixture under the pre-2001 version of this chapter. Rice v. Fas Fax Corp. (In re Hot Shots Burgers & Fries, Inc.), 169 B.R. 920 (Bankr. E.D. Ark. 1994) (decision under prior law).

Preexisting Interests.

Although this section makes marked changes in the law of fixtures, where deed of trust was entered into and recorded prior to the effective date of this subtitle, its priority under former law was saved by § 4-10-102(4). Wilson v. Prudential Ins. Co. of Am., 239 Ark. 1071, 396 S.W.2d 300 (1965) (decision under prior law).

Priority.

The lien of the supplier of an air conditioning unit, cooling tower, kitchen range and oven, and duct work attaching before such goods became fixtures took priority over the lien of prior mortgages to the extent of funds advanced under such mortgage liens as to funds advanced afterward. House v. Long, 244 Ark. 718, 426 S.W.2d 814 (1968) (decision under prior law).

Cited: In re Factory Homes Corp., 333 F. Supp. 126 (W.D. Ark. 1971); Womack v. Newman Fixture Co., 27 Ark. App. 117, 766 S.W.2d 949 (1989) (decisions under prior law).