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The Rural Voice, 1991-07, Page 22It Pays to Know About FCC Long -Term Loans With a FCC Long -Term Loan, you can lock in your interest rate for 5, 10, 15 years, or longer. Repayment terms are flexible. Your loan can be amortized over five to 29 years, with annual, semi-annual, or monthly payments. Long -Term Loans can be used to build or renovate buildings, including farm homes, to purchase land, equipment, and stock, or to refinance, as well as almost any other expenditure that will contribute to the success of your farm. Our friendly, courteous staff are trained in agricultural finance. If you need financing fora farm project, we will be happy to meet with you, in our office or at your farm. Talk to us first. To find out how FCC can help you, Walkerton Owen Sound Godcric h Stratford Listowel 1+1 881-1490 376-6338 524-5366 271-0460 291-3450 Farm Credit Societe du credit Corporation agncole Canada Canada Investing m Good Bosom .. Canadian Ain a. Long -Term Loans 1 Shared Risk Mortgages 1 Farm Syndicate Loans 18 THE RURAL VOICE WHO OWNS THE QUOTA? Production quota or the right to receive proceeds from the disposition of produc- tion quota is often taken by a lender as security for a loan. The Ontario Court of Appeal has determined that the assignment of such rights in respect of quota to a bank will not prevent a farmer from disposing of the quota free of the bank's interest. In a recent decision, the court held that a dairy farmer was free to dispose of milk quota with the approval of the Ontario Milk Marketing Board free of any interest of the bank arising from an assignment of milk quota proceeds. The farmer who held the milk quota, after assigning the milk quota proceeds to the bank as security for a loan, had transferred his dairy farm corpo- ration to his sister, then transferred the quota to the corporation. Both the farmer and his sister were at all times the only employees and officers of the farm corpo- ration. The bank had sought to set aside the transfer of the quota on the basis [hat such a transfer without regard to its inte- rest constituted a fraudulent conveyance. In determining that the bank's claim should be dismissed, the court held that, although the transfer had every ingredient of fraudulent conveyance, milk quota is not property sufficient to permit the bank to obtain a security interest or to be the subject of a fraudulent conveyance. The court relied upon its earlier decision in a case involving the assignment of tobacco quota and held that the legal character of both milk quota and tobacco quota is identical and precludes a bank from obtaining a security interest. In the tobacco quota case, the Court of Appeal was required to decide whether a tobacco farmer could properly assign basic production quota (BPQ) as security under a chattel mortgage after previously inclu- ding the quota in a land mortgage of the lands comprising the farm. The chattel mortgagee asserted that it had priority with respect to the BPQ by virtue of the regis- tration of its interest under the Personal Property Security Act (PPSA) over any interest of the land mortgagee. In deciding that BPQ is a mere privilege to produce and not property capable of supporting a security interest, the court of appeal stated: "In the case at Bar, the trial Judge recog- nized that the Tobacco Board regulations constituted the legislative means whereby control was exercised over every aspect of the sale, production, and marketing of to- bacco in Ontario. In my view, the regula- tions go still further. They vest in the board the complete authority to prohibit, restrain, or reduce the production and mar- keting of tobacco and the absolute discre- tion as to how that control is to be exer- cised. A review of the Farms Products Marketing Act and the regulations of the Tobacco Board make it clear that the BPQ is a privilege granted at the discretion of the board to do that which is otherwise prohibited. The statute could not be clear- er in this regard if it had specifically stated that the BPQ was to be deemed a privilege and not property. I conclude that a BPQ does not constitute intangible personal pro- perty as that term is utilized in the PPSA." Whether or not production quota such as milk and tobacco quota will continue to be considered not property and transfer- able free of creditors' claims is unclear. In the course of its judgement concerning the milk quota, the court indicated that, with respect to its earlier characterization of tobacco quota, the court may have placed too much emphasis on traditional defini- tions of personal property and may not have given sufficient consideration to the realities of commercial transactions within the regulatory framework of a modern farm products marketing scheme. The court has stated that it may be useful to re- consider this characterization of quota and, in the future, may be prepared to recognize a creditor's interest in production quota assigned as security. However, for the present, such quota appears to be freely transferable.0 Agrdaw is a syndicated column produced by Cohen, Melnitzer, a full service London law firm. Paul C. Vogel, a partner in the firm, practises in the area of commercial litigation. The opinions expressed are not intended as legal advice. Before acting on any information contained in Agrilaw, readers should obtain legal advice with respect to their own particular circumstances.