440 U.S. 715 (1979)
In 1968, O. K. Super Markets, Inc. borrowed $27,000 from Kimbell Foods, Inc., a grocery wholesaler, and granted security interests in its equipment and merchandise under two agreements containing dragnet clauses, which Kimbell perfected by filing financing statements with the Texas Secretary of State according to Texas law.1
In February 1969, O. K. Super Markets obtained a $300,000 loan from Republic National Bank of Dallas, secured by the same property, with the Small Business Administration guaranteeing 90 percent of the loan under the Small Business Act.2 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.3 Kimbell continued credit sales to O. K. Super Markets until the balance due reached $18,258.57 on January 15, 1971.4
Shortly before Kimbell filed suit, O. K. Super Markets had defaulted on the SBA-guaranteed loan.5 Republic assigned its security interest to the SBA in late December 1970, and recorded the assignment with Texas authorities on January 21, 1971.6 The United States then honored its guarantee and paid Republic $252,331.93 on February 3, 1971.7 That same day, O. K. Super Markets, with the approval of its creditors, sold its equipment and inventory and placed the proceeds in escrow pending resolution of the competing claims to the funds.8 Approximately one year later, the state court entered judgment against O. K. Super Markets, and awarded Kimbell $24,445.37, representing the inventory debt, plus interest and attorney’s fees.9 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.10
In the second case, from 1970 to 1972, Ralph Bridges obtained several loans from the Farmers Home Administration under the Consolidated Farmers Home Administration Act of 1961.11 To secure the FHA loans, the agency obtained a security interest in Bridges’ crops and farm equipment, which it perfected by filing a standard FHA financing statement with Georgia officials on February 2, 1972.12 Bridges subsequently took his tractor to respondent Crittenden for repairs on numerous occasions, accumulating unpaid repair bills of over $1,600.13 On December 21, 1973, Bridges again had respondent repair the tractor, at a cost of $543.81.14 When Bridges could not pay the balance of $2,151.28, respondent retained the tractor and acquired a lien therein under Georgia law.15
On May 1, 1975, after Bridges had filed for bankruptcy and had been discharged from his debts, the United States instituted this action against Crittenden to obtain possession of the tractor.16 The District Court held for the Government in the first case.17 The Court of Appeals for the Fifth Circuit reversed.18 In the second case, the District Court rejected the Government’s claim that the FHA’s security interest was superior to respondent’s and granted summary judgment for respondent on alternative grounds.19 The Court of Appeals affirmed in part and reversed in part.20 The Supreme Court granted certiorari in both cases.21
Whether federal or state law governs controversies over the relative priority of contractual liens arising from federal loan programs and private liens in the absence of a federal statute setting priorities?22
Federal law governs questions involving the rights of the United States arising under nationwide federal programs.23 When the United States disburses its funds or pays its debts, it is exercising a constitutional function or power.24 The authority to do so had its origin in the Constitution and the statutes of the United States and was in no way dependent on the laws of any State.25 The duties imposed upon the United States and the rights acquired by it find their roots in the same federal sources.26 In the absence of an applicable Act of Congress it is for the federal courts to fashion the governing rule of law according to their own standards.27 When Government activities arise from and bear heavily upon a federal program, the Constitution and Acts of Congress require otherwise than that state law govern of its own force.28 Federal interests are sufficiently implicated to warrant the protection of federal law.29 It is precisely when Congress has not spoken in an area comprising issues substantially related to an established program of government operation that federal courts must fill the interstices of federal legislation according to their own standards.
Yes. The SBA and FHA unquestionably perform federal functions within the meaning of Clearfield.30 The agencies derive their authority to effectuate loan transactions from specific Acts of Congress passed in the exercise of a constitutional function or power. Their rights should derive from a federal source. Federal law therefore controls the Government's priority rights in both controversies.31
Federal law governs the controversies over the relative priority of the liens in these cases.32
Whether, if federal law applies, this Court should fashion a uniform priority rule or incorporate state commercial law as the federal rule of decision?33
Controversies directly affecting the operations of federal programs, although governed by federal law, do not inevitably require resort to uniform federal rules.34 Whether to adopt state law or to fashion a nationwide federal rule is a matter of judicial policy dependent upon a variety of considerations always relevant to the nature of the specific governmental interests and to the effects upon them of applying state law.35 Undoubtedly, federal programs that by their nature are and must be uniform in character throughout the Nation necessitate formulation of controlling federal rules.36 Conversely, when there is little need for a nationally uniform body of law, state law may be incorporated as the federal rule of decision.37 Apart from considerations of uniformity, the choice-of-law inquiry must also determine whether application of state law would frustrate specific objectives of the federal programs.38 The inquiry must consider the extent to which application of a federal rule would disrupt commercial relationships predicated on state law.39
No. 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.40 The agencies' own operating practices show that they already conform to each State's commercial standards.41 SBA employees are instructed to follow state law. FHA regulations expressly incorporate state law and mandate compliance with state procedures for perfecting and maintaining valid security interests.42 The Government argues that effective administration of its lending programs requires uniform federal rules of priority.43 It contends further that resort to any rules other than first in time, first in right and choateness would conflict with protectionist fiscal policies.44 These arguments are unpersuasive in the circumstances presented here.45 The state commercial codes furnish convenient solutions in no way inconsistent with adequate protection of the federal interests.
Significant differences between federal tax liens and consensual liens counsel against unreflective extension of rules that immunize the United States from the commercial law governing all other voluntary secured creditors.46 The overriding purpose of the tax lien statute obviously is to ensure prompt revenue collection.47 The same cannot be said of the SBA and FHA lending programs.48 They are a form of social welfare legislation, primarily designed to assist farmers and businesses that cannot obtain funds from private lenders on reasonable terms.49 The United States is an involuntary creditor of delinquent taxpayers, unable to control the factors that make tax collection likely.50 In contrast, when the United States acts as a lender or guarantor, it does so voluntarily, with detailed knowledge of the borrower's financial status.51 The agencies evaluate the risks associated with each loan, examine the interests of other creditors, choose the security believed necessary to assure repayment, and set the terms of every agreement.52 By carefully selecting loan recipients and tailoring each transaction with state law in mind, the agencies are fully capable of establishing terms that will secure repayment.53
In structuring financial transactions, businessmen depend on state commercial law to provide the stability essential for reliable evaluation of the risks involved.54 Subjecting federal contractual liens to the doctrines developed in the tax lien area could undermine that stability.55 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.56 The prudent course is to adopt the readymade body of state law as the federal rule of decision until Congress strikes a different accommodation.57 In No. 77-1359, the Court of Appeals found that Texas law gave preference to Kimbell's lien.58 We therefore affirm the judgment in that case.59 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.60 Nor did the court assess the sufficiency of the FHA’s financing statement under Georgia law.61
State commercial law should be incorporated as the federal rule of decision rather than fashioning a uniform priority rule.62