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PAG LIN 1 1 Section 1. Section 554.9307, subsection 1, Code 1997, is 1 2 amended to read as follows: 1 3 1.Except as provided in subsection 4, aA buyer in the 1 4 ordinary course of business as defined in section 554.1201, 1 5 subsection 9, takes free of a security interest created by 1 6 that person's seller even though the security interest is 1 7 perfected and even though the buyer knows of its existence. 1 8 However, this section does not apply to buyers of farm 1 9 products as provided in section 554.9307A. For purposes of 1 10 this section, a buyer or buyer in the ordinary course of 1 11 business includes any commission merchant, selling agent, or 1 12 other person engaged in the business of receiving livestock as 1 13 defined in section 189A.2 on commission for or on behalf of 1 14 another. 1 15 Sec. 2. Section 554.9307, subsections 4 through 6, Code 1 16 1997, are amended by striking the subsections. 1 17 Sec. 3. NEW SECTION. 554.9307A FARM PRODUCTS. 1 18 1. As used in this section unless the context otherwise 1 19 requires: 1 20 a. "Buyer" means a person who, in the ordinary course of 1 21 business, buys farm products from a person engaged in farming 1 22 operations who is in the business of selling farm products. A 1 23 buyer includes a commission merchant and selling agent as 1 24 defined in this section. 1 25 b. "Central filing system" means a system for filing 1 26 effective financing statements or notice of such financing 1 27 statements as provided in subsection 2. 1 28 c. "Commission merchant" means a person engaged in the 1 29 business of receiving any farm product for sale, on 1 30 commission, or for or on behalf of another person. 1 31 d. "Crop year" means the calendar year in which a crop is 1 32 or will be harvested, animals are born or acquired, or poultry 1 33 or eggs are or will be sold. 1 34 e. "Debtor" means a person who owns a farm product and 1 35 subjects it to a security interest, whether or not that person 2 1 owes a debt to the secured party. 2 2 f. "Effective financing statement" means a financing 2 3 statement required to be filed as part of the central filing 2 4 system as provided in subsection 2. 2 5 g. "Farm product" means an agricultural commodity such as 2 6 wheat, corn, soybeans, or a species of livestock such as 2 7 cattle, hogs, sheep, horses, or poultry used or produced in 2 8 farming operations. "Farm product" also means a product of 2 9 such crop or livestock in its unmanufactured state that is in 2 10 the possession of a person engaged in farming operations. The 2 11 secretary, by rule, shall create a list of farm products which 2 12 may include the list of farm products set forth in 9 C.F.R. } 2 13 205.206. 2 14 h. "Knows" means having actual knowledge. "Knowledge" 2 15 means actual knowledge. 2 16 i. "Secretary" means the secretary of state. 2 17 j. "Security interest" means an interest in a farm product 2 18 that secures payment or performance of an obligation. 2 19 k. "Selling agent" means a person, other than a commission 2 20 merchant, who is engaged in the business of negotiating the 2 21 sale and purchase of a farm product on behalf of a person 2 22 engaged in farming operations. 2 23 2. The secretary shall establish and administer a central 2 24 filing system for filing effective financing statements or 2 25 notices of effective financing statements on a statewide basis 2 26 which complies with the requirements set forth in 7 U.S.C. } 2 27 1631 and which has been certified by the secretary of the 2 28 United States department of agriculture prior to 2 29 implementation. 2 30 a. The secretary shall provide for filing effective 2 31 financing statements, and statements amending, continuing, or 2 32 terminating effective financing statements, as provided in 2 33 this paragraph. The secretary shall prescribe all forms to be 2 34 used for a filing, and shall establish filing fees by rule. 2 35 Presentation for filing a statement and the acceptance of the 3 1 statement by the secretary constitutes filing under this 3 2 subsection. 3 3 (1) An effective financing statement shall be valid if it 3 4 substantially complies with the requirements of this paragraph 3 5 even though it contains minor errors that are not seriously 3 6 misleading. An effective financing statement shall comply 3 7 with all of the following: 3 8 (a) It must be an original or reproduced copy which is 3 9 signed by the secured party and debtor. The statement must be 3 10 filed with the secretary by the secured party. The secretary 3 11 shall record the date and hour of the filing of the effective 3 12 financing statement. The statement must contain information 3 13 that the secretary requires to comply with 7 U.S.C. } 1631 or 3 14 to administer this section. 3 15 (b) The statement must contain all of the following: 3 16 (i) The name and address of the secured party. 3 17 (ii) The name and address of the debtor. 3 18 (iii) The social security number of the debtor or, in the 3 19 case of a debtor doing business other than as an individual, 3 20 the internal revenue service taxpayer identification number of 3 21 the debtor. 3 22 (iv) A description of the farm products subject to the 3 23 security interest, the county in Iowa where the farm products 3 24 are produced or will be produced, the crop year unless every 3 25 crop of the farm product in question for the duration of the 3 26 effective financing statement is to be subject to the 3 27 particular security interest, further details of the farm 3 28 product subject to the security interest if needed to 3 29 distinguish it from other quantities of the product owned by 3 30 the same person or persons but not subject to the particular 3 31 security interest, and other information that the secretary 3 32 requires to administer this section. The effective financing 3 33 statement may cover more than one farm product located in more 3 34 than one county. 3 35 (2) The following shall apply to an effective financing 4 1 statement: 4 2 (a) It shall remain effective for a period of five years 4 3 from the date of filing, subject to extensions for additional 4 4 periods of five years each by refiling or filing a 4 5 continuation statement within six months before the expiration 4 6 of the five-year period. A continuation statement shall be 4 7 signed by the secured party and the debtor, identify the 4 8 original effective financing statement by file number, and 4 9 state that the original financing statement is still 4 10 effective. Upon timely filing of a continuation statement, 4 11 the effectiveness of the original financing statement shall be 4 12 continued for five years after the last date to which the 4 13 filing was effective, whereupon it shall lapse unless another 4 14 continuation statement is filed prior to the lapse. 4 15 Succeeding continuation statements may be filed in the same 4 16 manner to continue the effectiveness of the original effective 4 17 financing statement. 4 18 (b) It shall be amended in writing to reflect a material 4 19 change, within three months of the change. The amendment 4 20 shall be signed and filed as required for an original 4 21 effective financing statement. 4 22 (c) It lapses upon the expiration of the effective period 4 23 of the effective financing statement or terminates upon the 4 24 filing of a notice signed by the secured party that the 4 25 statement is terminated. If the effective financing statement 4 26 has not lapsed or terminated and there is no outstanding 4 27 secured obligation and no commitment to make advances, incur 4 28 obligations, or otherwise give value, the debtor may notify 4 29 the secured party in writing to terminate the effective 4 30 financing statement. Until the debtor instructs the secured 4 31 party in writing to terminate the effective financing 4 32 statement, the secured party has no obligation to terminate 4 33 the effective financing statement. Within thirty days after 4 34 receipt by the secured party of the notice from the debtor to 4 35 terminate the effective financing statement, the secured party 5 1 shall file with the secretary of state a termination statement 5 2 with respect to the effective financing statement. 5 3 b. The secretary shall compile the effective financing 5 4 statements into a master list subject to all of the following: 5 5 (1) The master list shall be organized according to farm 5 6 products. The master list shall contain information required 5 7 to be in effective financing statements filed with the 5 8 secretary. The secretary shall arrange the master list for 5 9 each farm product as follows: 5 10 (a) In alphabetical order according to the last name of 5 11 the individual debtors or, in the case of debtors doing 5 12 business other than as individuals, the first word in the name 5 13 of such debtors. 5 14 (b) In numerical order according to the social security 5 15 numbers of the individual debtors or, in the case of debtors 5 16 doing business other than as individuals, the internal revenue 5 17 service taxpayer identification numbers of the debtors. 5 18 (c) Geographically by county. 5 19 (d) By crop year. 5 20 (2) The master list shall include information regarding 5 21 buyers who register with the secretary on forms prescribed by 5 22 the secretary as provided in subparagraph (3). 5 23 (3) The secretary shall maintain a buyers list of all 5 24 buyers of farm products who register with the secretary. A 5 25 buyer registering with the secretary shall pay a registration 5 26 fee set by the secretary and complete forms requiring all of 5 27 the following information, as prescribed by the secretary: 5 28 (a) The name and address of the buyer. 5 29 (b) The interest of the buyer in receiving the lists 5 30 described in this paragraph. 5 31 (c) The farm products in which the buyer has an interest. 5 32 (4) The secretary shall distribute to each buyer whose 5 33 name appears on the buyers list a copy in written or printed 5 34 form of those portions of the master list relating to farm 5 35 products in which the buyer has registered an interest. The 6 1 secretary may provide for the distribution of the master list 6 2 or portions of the list on any other medium requested by a 6 3 registered buyer. If a registered buyer so requests, the 6 4 information provided to the buyer may be limited to a county 6 5 or group of counties where the farm product is produced or to 6 6 a crop year or crop years or to a combination of these 6 7 identifiers. The secretary shall charge a buyer an annual fee 6 8 to cover costs of distributing the lists. Distribution is 6 9 subject to all of the following: 6 10 (a) The distribution shall be by regular mail. 6 11 (b) The secretary shall, by rule, establish the dates upon 6 12 which the monthly distributions will be made, the dates after 6 13 which a filing of an effective financing statement will not be 6 14 reflected on the next monthly distribution of lists, and the 6 15 dates by which a buyer must complete a registration to receive 6 16 the next monthly list. 6 17 (c) The secretary shall remove information pertaining to 6 18 lapsed and terminated effective financing statements or 6 19 notices of such financing statements from the master list 6 20 prior to preparation of the lists required to be distributed. 6 21 (d) Upon written notice to the secretary by a buyer, the 6 22 secretary shall terminate distribution of the list to the 6 23 buyer. 6 24 Oral and written inquiries by a buyer not registered 6 25 pursuant to this paragraph may be made to the secretary during 6 26 hours determined by the secretary. An oral response to 6 27 inquiries shall be available to an inquiring nonregistered 6 28 buyer not later than on the regular business day following the 6 29 day on which the inquiry was received, at or before the time 6 30 of day when it was received. Written confirmation of the 6 31 information provided orally in response to the inquiry shall 6 32 be mailed by first class mail to the nonregistered buyer, at 6 33 an address provided by the buyer, by the secretary not later 6 34 than the second regular business day following the day on 6 35 which the inquiry was received. The secretary of state may 7 1 provide for a computerized system for inquiry and confirmation 7 2 which may be used in lieu of the inquiry and confirmation 7 3 system otherwise provided for in this section. 7 4 In order to verify the existence or nonexistence of a 7 5 security interest, a buyer may request a seller to disclose 7 6 the seller's social security number or, in the case of a 7 7 seller doing business other than as an individual, the 7 8 internal revenue service taxpayer identification number of the 7 9 seller. 7 10 3. Except as provided in this subsection, a buyer who buys 7 11 farm products from a seller engaged in farming operations 7 12 shall take free of a security interest created by the seller, 7 13 even though the security interest is perfected and the buyer 7 14 knows of the existence of the interest. 7 15 a. In the case where a centralized filing system is 7 16 utilized as provided in subsection 2, the buyer of farm 7 17 products takes subject to a security interest in the farm 7 18 product if either of the following applies: 7 19 (1) The buyer fails to register with the secretary prior 7 20 to the purchase of farm products, and the secured party has 7 21 filed an effective financing statement or notice that covers 7 22 the farm products being sold. 7 23 (2) The buyer receives from the secretary written notice 7 24 as provided in subsection 2 that identifies both the seller 7 25 and the farm product being sold by the seller as being subject 7 26 to an effective financing statement or notice, and the buyer 7 27 does not secure a waiver or release of the security interest 7 28 as specified in the effective financing statement or notice 7 29 from the secured party by performing any payment obligation. 7 30 b. In the case where a centralized filing system is not 7 31 utilized as provided in subsection 2, the buyer of a farm 7 32 product takes subject to a security interest in the farm 7 33 product if, within one year before the sale of the farm 7 34 product, the buyer receives written notice directly from the 7 35 secured party or the debtor who sells the farm product. The 8 1 written notice must be an original or reproduced copy of the 8 2 written notice, which is signed by either the secured party or 8 3 the debtor who transmits the notice to the potential buyer. 8 4 (1) The notice must contain all of the following: 8 5 (a) The name and address of the secured party. 8 6 (b) The name and address of the debtor. 8 7 (c) The social security number of the debtor or, in the 8 8 case of a debtor doing business other than as an individual, 8 9 the internal revenue service taxpayer identification number of 8 10 the debtor. 8 11 (d) A description of the farm products subject to the 8 12 security interest created by the debtor, including the amount 8 13 of the products where applicable. 8 14 (e) An identification of the crop year in which the farm 8 15 products were produced. 8 16 (f) An identification of the county in which the farm 8 17 products were produced. 8 18 (g) A reasonable description of the property on which the 8 19 farm products were produced. 8 20 (h) A statement of any payment obligations imposed on the 8 21 buyer by the secured party as a condition for waiver or 8 22 release of the security interest. 8 23 (2) A secured party may require, in documents creating a 8 24 security interest, that a debtor engaged in farming 8 25 operations, who creates a security interest in a farm product, 8 26 furnish to the secured party a list of potential buyers to or 8 27 through whom the debtor may sell the farm product. Before a 8 28 secured party may furnish a potential buyer who is not on the 8 29 list with written notice of a security interest in a farm 8 30 product, the secured party shall notify the debtor of the name 8 31 and address of the potential buyer. 8 32 (3) A written notice shall be amended by the secured party 8 33 within three months of any material change. The amended 8 34 notice shall be signed and transmitted to the potential buyer 8 35 in the manner required for the original written notice, by 9 1 either the secured party or the debtor selling the farm 9 2 products. A written notice lapses on the earlier of either 9 3 one year from the date the notice was received by the buyer or 9 4 the date the buyer receives a notice signed by the secured 9 5 party that the security interest has lapsed. 9 6 (4) For purposes of this section, a written notice shall 9 7 be considered to be received by the person to whom it was sent 9 8 or delivered if the notice is delivered in hand to the person 9 9 with a written receipt returned. If written notice is mailed 9 10 by a secured party, the notice must be mailed by certified or 9 11 registered mail with the proper postage and properly addressed 9 12 to the person to whom it was sent. The refusal of a person to 9 13 whom a notice is sent to accept delivery of the notice shall 9 14 be considered receipt. 9 15 (5) If the written notice to a potential buyer by a 9 16 secured party or debtor satisfies the requirements of 9 17 subparagraph (1), and the debtor sells the farm products 9 18 subject to the security interest to a buyer not included on 9 19 the list as a potential buyer as required in subparagraph (2), 9 20 or to any other buyer, if the name and address of the buyer 9 21 were not received by the debtor pursuant to subparagraph (2), 9 22 then the debtor is subject to a civil penalty of the greater 9 23 of either five thousand dollars or fifteen percent of the 9 24 value or benefits received by the debtor for the farm products 9 25 described in the documents creating the security interest. 9 26 However, the penalty provided in this subparagraph shall be 9 27 imposed on the debtor in lieu of but not in addition to the 9 28 penalty described in 7 U.S.C. } 1631. A state penalty shall 9 29 not be imposed on the debtor if the debtor has complied with 9 30 any of the following: 9 31 (a) Notified the secured party in writing of the identity 9 32 of the buyer at least seven days prior to the sale. 9 33 (b) Accounted to the secured party for the proceeds of the 9 34 sale not later than ten days after the sale. 9 35 Sec. 4. DIRECTIONS TO THE SECRETARY OF STATE. The 10 1 secretary of state shall adopt rules necessary to implement 10 2 this Act. If necessary to obtain federal certification of the 10 3 central filing system, additional or alternative requirements 10 4 made in conformity with 7 U.S.C. } 1631, may be imposed by the 10 5 secretary of state by rule. 10 6 Sec. 5. EFFECTIVE DATE. This Act takes effect on January 10 7 1, 1998. 10 8 EXPLANATION 10 9 Under Code section 554.9307 of Iowa's uniform commercial 10 10 code, a buyer in the ordinary course of business takes free of 10 11 a security interest created by the seller, unless the buyer 10 12 purchases farm products. This is sometimes referred to as 10 13 "the farm products rule". In 1985, Congress enacted 10 14 legislation providing two approaches for notifying buyers of 10 15 farm products; a system of certified central filing and the 10 16 already-existing system for actual notification. 10 17 In 1987, the general assembly enacted legislation requiring 10 18 actual notification to buyers. Under current law, a buyer in 10 19 the ordinary course of business buying farm products from a 10 20 debtor engaged in farming operations takes subject to a 10 21 security interest created by the debtor only if within one 10 22 year before the sale of the farm products the buyer receives 10 23 prior written notice of the security interest. 10 24 This bill creates a centralized filing system for this 10 25 state. The system is administered by the secretary of state 10 26 who must provide for filing effective financing statements on 10 27 a statewide basis. The secretary of state must produce a 10 28 master list of information required to be contained in the 10 29 effective financing statements. The bill provides 10 30 requirements for the contents and duration of an effective 10 31 financing statement. The bill provides for the distribution 10 32 of information by the secretary regarding effective financing 10 33 statements to interested persons by sending the information to 10 34 buyers registered with the secretary and by answering specific 10 35 oral and written inquiries. 11 1 The bill authorizes the secretary of state to establish 11 2 fees for filing effective financing statements and 11 3 distributing information. The bill provides for penalties for 11 4 persons who fail to provide lists of potential buyers to 11 5 secured parties. The bill takes effect on January 1, 1998. 11 6 LSB 1821SC 77 11 7 da/jj/8
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