Co-Alliance, LLP v. Monticello Farm Service, Inc., No. 91A05-1312-PL-607, __ N.E.3d __ (Ind. Ct. App., April 23, 2014).

Shepard, Senior Judge

We conclude that Indiana should follow the majority rule on agreements to modify the priority of liens securing interests in a borrower’s assets.

Here, the lender in first position agreed to subordinate part of its lien in favor of a third-position lender, in effect a partial assignment that reduced the extent of its first position. Such a contract should neither harm nor help the second-position lender, who was not a party to the agreement.

We think recognizing such agreements is consistent with the Uniform Commercial Code and Indiana common law. We therefore affirm the trial court’s decision.

….

We instead adopt the majority rule, which allows for partial subordination of the first lienholder’s interest. The Bank could induce Monticello to finance the Clarks’ 2010 crops by giving Monticello its right to first payment. By virtue of the subordination agreement, Monticello would be paid first, but only up to the amount of the Bank’s senior claim, to which Co-Alliance was in any event junior. Co-Alliance would still receive what it expected to receive had there been no subordination agreement.

….

We therefore affirm.

NAJAM, J., and KIRSCH, J., concur.

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