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.
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).
In 1968, O. K. Super Markets borrowed $27,000 from
In February 1969, 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
O. K. Super Markets used the Republic loan proceeds to satisfy the remainder of the 1968 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
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.
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
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.
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 494-498, 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
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.
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
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 366-367:
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 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. It is precisely when Congress has not spoken " `in an area comprising issues substantially related to an established program of government operation,' " id., at 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 367.
Federal law therefore controls the Government's priority rights. The more difficult task, to which we turn, is giving content to this federal rule.
Controversies directly affecting the operations of federal programs, although governed by federal law, do not inevitably
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, 354 (1966); see Clearfield Trust Co. v. United States, supra, at 367; United States v. Standard Oil Co., supra, at 311; Illinois v. Milwaukee, 406 U.S. 91, 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.
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 309, we decline to override intricate state laws of general applicability on which private creditors base their daily commercial transactions.
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 357, the federal interest in supplanting "important
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 357 n. 35, SBA employees are still instructed to, and indeed do, follow state law.
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.
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.
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
That collection of taxes is vital to the functioning, indeed existence, of government cannot be denied. McCulloch v. Maryland, 4 Wheat. 316, 425, 428, 431 (1819); Springer v. United States, 102 U.S. 586, 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 moneylending 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
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.
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.
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, 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.
Because the ultimate consequences of altering settled commercial practices are so difficult to foresee,
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 58 (footnote omitted), we vacate the judgment in No. 77-1644 and remand for resolution of these issues.
James D. Keast and William J. Travis filed a brief for the National Farm & Power Equipment Dealer's Assn. as amicus curiae urging affirmance in No. 77-1644.
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 insolvency. 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 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).
"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 [federal 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).
"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.
"Uniform Commercial Code—Factor's Lien Laws. 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.
"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."
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.
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.