SSB 3167 (LSB 5829XC (1) 90)

SENATE FILE _____ 

BY  (PROPOSED COMMITTEE ON AGRICULTURE BILL BY CHAIRPERSON DRISCOLL)

A BILL FOR

An Act establishing a central filing system relating to security interests in farm products, providing fees, and including contingent implementation and effective date provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  Section 554.9102, subsection 4, Code 2024, is amended to read as follows:
   4.  Federal Food Security Act.
   a.  For purposes of the Federal Food Security Act, 7 U.S.C. §1631, written notice shall be considered to be received by the person to whom it was delivered if the notice is delivered in hand to the person, or mailed by certified or registered mail with the proper postage and properly addressed to the person to whom it was sent. The refusal of a person to whom a notice is so mailed to accept delivery of the notice shall be considered receipt.
   b.  This subsection is repealed on the date that this Act is implemented as provided in this Act.
    Sec. 2.  NEW SECTION.  554C.1  Definitions.
   As used in this chapter, unless the context otherwise requires: 
   1.  “Buyer in the ordinary course of business” means a person who, in the ordinary course of business, buys farm products from a person engaged in farming operations who is in the business of selling farm products.
   2.  “Central filing system” means a system for filing effective financing statements, and statements amending, continuing, or terminating effective financing statements as provided in section 554C.4.
   3.  “Commission merchant” means a person engaged in the business of receiving any farm product for sale, on commission, or for or on behalf of another person. 
   4.  “Effective financing statement” means a financing statement required to be filed as part of the central filing system as provided in section 554C.6. 
   5.  “Secretary” means the secretary of state.
   6.  “Selling agent” means a person, other than a commission merchant, who is engaged in the business of negotiating the sale and purchase of a farm product on behalf of a person engaged in farming operations.
    Sec. 3.  NEW SECTION.  554C.2  Special definitions.
   To every extent consistent with the application of federal law, unless the context otherwise requires: 
   1.  “Agricultural lien” means the same as defined in section 554.9102.
   2.  “Buyer” means a buyer in the ordinary course of business, a commission merchant, or a selling agent.
   3.  “Crop year” means the calendar year in which a crop is or will be harvested, animals are born or acquired, or poultry or eggs are or will be sold.
   4.  “Debtor” means a person who has an interest other than a security interest in a farm product, or any other person who owns a farm product and subjects the farm product to a security interest whether or not that person owes a debt to the secured party.
   5.  “Farm products” means the same as defined in section 554.9102.
   6.  “Farming operation” means the same as defined in section 554.9102.
   7.  a.  “Secured party” means a secured party in whose favor a security interest in farm products is created.
   b.  “Secured party” includes the holder of a lien, including an agricultural lien, on farm products.
   8.  a.  “Security interest” means an interest in farm products that secures payment or performance of an obligation.
   b.  “Security interest” includes a lien created by statute, including an agricultural lien.
   9.  “Signature” means a symbol used to sign, execute, or otherwise to encrypt or similarly process a record, in whole or in part, with the present intent of authenticating the record for purposes of identifying the person adopting or accepting the record.
   10.  “Unique identifier” means a number, combination of numbers and letters, or other identifier selected by the secretary of state using a selection system or method approved by the secretary of the United States department of agriculture.
    Sec. 4.  NEW SECTION.  554C.3  Chapter consistent with uniform commercial code.
   This chapter shall be interpreted in conjunction with chapter 554, and terms and phrases used in this chapter shall, to every extent practicable, be interpreted consistently with chapter 554, article 9.
    Sec. 5.  NEW SECTION.  554C.4  Central filing system —— establishment and certification.
   1.  The secretary of state shall establish and administer a central filing system for the electronic filing and examining of effective financing statements and statements amending, continuing, or terminating effective financing statements on a statewide basis.
   2.  The central filing system shall be designed to allow persons to file and examine effective financing statements and statements amending, continuing, or terminating effective financing statements using the internet. The secretary may provide for the filing and examining of statements amending, continuing, or terminating effective financing statements in a paper format.
   3.  The central financing system must comply with the requirements set forth in 7 U.S.C. §1631, as certified by the United States secretary of agriculture prior to the implementation date of this Act.
    Sec. 6.  NEW SECTION.  554C.5  Effective financing statements —— filing requirements.
   1.  The secretary of state shall provide for filing effective financing statements, and statements amending, continuing, or terminating effective financing statements, as provided in this section. The secretary shall prescribe all forms to be used for filing. The presentation for filing of an effective financing statement and statement amending, continuing, or terminating an effective financing statement and the acceptance of any such statement by the secretary constitutes filing under this section. 
   2.  An effective financing statement is valid if the statement substantially complies with the requirements of this section even though it contains minor errors that are not seriously misleading.
   3.  An effective financing statement must contain information that the secretary requires to comply with 7 U.S.C. §1631 or to administer this section. The statement must be an original or reproduced copy which is signed by the secured party and the debtor. If filed electronically, the debtor is not required to sign the statement. The statement must be filed with the secretary by the secured party. The secretary shall record the date and hour of the filing of the statement.
   4.  An effective financing statement must contain all of the following:
   a.  The name and address of the secured party.
   b.  The name and address of the debtor.
   c.  The unique identifier of the debtor. 
   d.  A description of the farm products subject to the security interest, the county in Iowa where the farm products are produced or will be produced, the crop year unless every crop of the farm product in question for the duration of the effective financing statement is to be subject to the particular security interest, and further details of the farm products subject to the security interest if needed to distinguish it from other quantities of farm products owned by the same person or persons but not subject to the particular security interest.
   e.  Any other information that the secretary requires to comply with 7 U.S.C. §1631 or to administer this section. 
   5.  The effective financing statement may cover more than one farm product located in more than one county.
   6.  A continuation statement shall be signed by the secured party, identify the original effective financing statement by file number, and state that the original financing statement is still effective.
    Sec. 7.  NEW SECTION.  554C.6  Effective financing statements —— effectiveness.
   1.  The effective financing statement shall remain effective for a period of five years from the date of filing, subject to extensions for additional periods of five years each by filing or refiling a continuation statement within six months before the expiration of the five-year period.
   2.  Upon timely filing of a continuation statement, the effectiveness of the original financing statement shall be continued for five years after the last date to which the prior filing was effective, whereupon it shall lapse unless another continuation statement is filed prior to the lapse. Succeeding continuation statements may be filed in the same manner to continue the effectiveness of the original effective financing statement. 
   3.  The effective financing statement shall be amended in writing to reflect a material change within three months of the material change. The amendment shall be signed and filed as required for an original effective financing statement. If the statement is filed electronically, the signature of the debtor shall not be required. 
   4.  a.  The effective financing statement lapses upon the expiration of the effective period of the effective financing statement or is terminated upon the filing of a statement signed by the secured party that the effective financing statement is terminated.
   b.  If the effective financing statement has not lapsed or is not terminated and there are no outstanding secured obligations and no commitments to make advances, incur obligations, or otherwise give value, the debtor may notify the secured party in writing to terminate the effective financing statement.
   c.  Until the debtor instructs the secured party in writing to terminate the effective financing statement, the secured party has no obligation to terminate the statement. 
   d.  Within thirty days after receipt by the secured party of the statement from the debtor to terminate the effective financing statement, the secured party shall file with the secretary a termination statement with respect to the effective financing statement. 
    Sec. 8.  NEW SECTION.  554C.7  Master list —— organization and contents.
   1.  The secretary of state shall compile the filed effective financing statements into a master list.
   2.  The master list shall be organized according to farm products. The master list shall contain information required to be contained in effective financing statements filed with the secretary. The secretary shall arrange the master list for each farm product as follows: 
   a.  In alphabetical order according to the last name of the individual debtors or, in the case of debtors doing business other than as individuals, the first word in the name of such debtors. 
   b.  In numerical order according to the unique identifiers of the debtors. 
   c.  Geographically by county. 
   d.  By crop year. 
   3.  The master list shall include information regarding buyers who register with the secretary on forms prescribed by the secretary as provided in this section. The secretary may require that a buyer be classified as a buyer in the ordinary course of business, commission merchant, or selling agent.
   4.  The secretary shall maintain a list of all buyers of farm products who register with the secretary. A buyer registering with the secretary shall complete forms requiring all of the following information, as prescribed by the secretary:
   a.  The name and address of the buyer. 
   b.  The interest of the buyer in receiving the list. 
   c.  The farm products in which the buyer has an interest. 
   d.  Any other information that the secretary determines is necessary to comply with 7 U.S.C. §1631 or to administer this section.
    Sec. 9.  NEW SECTION.  554C.8  Master list —— distribution and inquiries. 
   1.  The secretary of state shall distribute to each registered buyer a copy in written, printed, or electronic form of those portions of the master list relating to farm products in which the buyer has registered an interest. The secretary may provide for the distribution of the master list or portions of the list on any other medium requested by a registered buyer. If a registered buyer so requests, the information provided to the buyer may be limited to a county or group of counties where the farm products are produced or to a crop year or crop years or to a combination of those identifiers. 
   2.  Distribution is subject to all of the following: 
   a.  The distribution shall be by first class or electronic mail. 
   b.  The secretary shall adopt rules pursuant to chapter 17A establishing the dates upon which the quarterly distributions will be made, the dates after which a filing of an effective financing statement will not be reflected on the next quarterly distribution of lists, and the dates by which a buyer must complete a registration to receive the next quarterly list. 
   3.  The secretary shall remove information pertaining to lapsed and terminated effective financing statements from the master list prior to preparation of the lists required to be distributed. 
   4.  Upon written notice to the secretary by a registered buyer requesting termination of the distribution of the list to the registered buyer, the secretary shall terminate distribution of the list to the registered buyer.
   5.  Oral and written inquiries by a buyer not registered pursuant to section 554C.7 may be made to the secretary during hours determined by the secretary.
   a.  The secretary may provide for a computerized system for inquiry and confirmation which may be used in lieu of the inquiry and confirmation system otherwise provided for in this section.
   b.  Written confirmation of the information provided orally in response to the inquiry shall be delivered by first class mail or electronic mail to the buyer, at an address provided by the buyer, by the secretary not later than the second regular business day following the day on which the inquiry was received.
   6.  In order to verify the existence or nonexistence of a security interest, a buyer may request a seller to disclose the seller’s unique identifier.
    Sec. 10.  NEW SECTION.  554C.9  Perfection —— creation of superior interests. 
   1.  If a buyer fails to register with the secretary of state prior to the purchase of farm products, the buyer takes subject to a security interest in the farm products only if the secured party has filed an effective financing statement that covers the farm products being sold, and the buyer could have discovered the existence of the effective financing statement prior to the purchase by accessing the database containing effective financing statements filed electronically with the secretary. 
   2.  If the buyer registers with the secretary prior to the purchase of the farm products, the buyer takes subject to a security interest in the farm products only if the secured party has filed an effective financing statement that covers the farm products being sold, and the buyer does not secure a waiver or release of the security interest as specified in the effective financing statement from the secured party. If a buyer in the ordinary course of business buying farm products covered by the central filing system as provided in section 554C.4 tenders to the seller the total purchase price by means of a check or any other form of payment payable to such seller and each security interest holder of the seller identified in the central filing system for such products and if such security interest holder authorizes the negotiation of such check or other form of payment, such authorization or endorsement and payment thereof shall constitute a waiver or release of the security interest specified to the extent of the amount of the instrument. Such waiver or release of the security interest shall not serve to establish or alter in any way security interest priorities under Iowa law.
    Sec. 11.  NEW SECTION.  554C.10  Fees.
   1.  The secretary of state shall establish fees for initially filing an effective financing statement, or a statement amending, continuing, or terminating an effective financing statement. The fees shall not be more than provided for filing financing statements as provided in section 554.9525.
   2.  Notwithstanding section 22.3, the secretary may charge a buyer a fee for registering to receive a master list or for receiving responses to inquiries which are accessed in a printed format. The secretary shall not charge a buyer a fee for registering to receive a master list or for responding to buyer inquiries, including by examining or printing effective financing statements, and statements amending, continuing, or terminating effective financing statements which are accessed in an electronic format.
   3.  All moneys received by the secretary under this section shall be handled in the same manner as repayment receipts, as defined in section 8.2, and shall be used by the secretary exclusively for the administration of this chapter. 
    Sec. 12.  NEW SECTION.  554C.11  Rules.
   The secretary of state shall adopt rules pursuant to chapter 17A necessary or desirable to administer this chapter.
    Sec. 13.  DIRECTIONS TO SECRETARY OF STATE.
   1.  The secretary of state shall adopt rules necessary to implement this Act, including by requesting certification of a central filing system as provided in this Act pursuant to 7 U.S.C. §1631. If it is necessary to obtain federal certification, the secretary of state may adopt rules providing additional requirements made in conformity with 7 U.S.C. §1631.
   2.  If the secretary of the United States department of agriculture rejects federal certification, the secretary of state shall propose legislation prior to the next session of the general assembly necessary to comply with the certification requirements of 7 U.S.C. §1631.
    Sec. 14.  CONTINGENT IMPLEMENTATION.  The implementation of this Act is contingent upon federal certification of a central filing system as provided in this Act pursuant to 7 U.S.C. §1631. The provisions of this Act shall be implemented on the first business day three months after the date of such certification. The secretary of state shall provide notice of the implementation date in the Iowa administrative bulletin in three consecutive issues prior to the implementation date. Until the implementation date, persons shall take subject to or free of a security interest, including a lien, in the same manner and according to the same procedures applicable immediately prior to the implementation date.
    Sec. 15.  EFFECTIVE DATES.
   1.  Except as provided in subsection 2, this Act takes effect July 1, 2024.
   2.  The sections of this Act providing for the adoption of rules by the secretary of state in preparation to request certification of a central filing system as provided in this Act pursuant to 7 U.S.C. §1631 take effect upon enactment.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   CENTRALIZED FILING SYSTEM —— GENERAL. This bill creates a centralized, statewide filing system (system) for security interests in farm products to notify buyers of farm products subject to an attached security interest. The system is to facilitate notice under Article 9 of the Uniform Commercial Code (UCC) (Code chapter 554). Farm products include goods other than standing timber produced as part of a farming operation and includes crops, aquatic goods, livestock, supplies used or produced on the farming operation, or products of crops or livestock in an unmanufactured form (Code section 554.9102). The system must be certified by the United States department of agriculture. 
   The bill allows a person who has a secured interest attached to farm products to complete and file a document referred to as an effective financing statement or a statement amending, continuing, or terminating the effective financing statement, with the secretary of state. The secretary must compile information contained in the effective financing statements into a master list organized according to farm products which the secretary must regularly distribute to persons designated as buyers of farm products registered with the secretary. This includes buyers in the ordinary course of business, commission merchants, and selling agents. The secretary may also respond to verbal or written inquiries by buyers including unregistered buyers and deliver a written confirmation to inquiring buyers regarding whether a farm product is subject to a security interest. 
   CENTRALIZED FILING SYSTEM —— REGISTRATION. If a buyer registers with the secretary prior to the purchase of farm products, the registered buyer takes subject to the security interest only if the secured party has filed an effective financing statement that covers the farm products being sold, unless the registered buyer secures a release of the security interest. If a buyer fails to register with the secretary, the buyer takes subject to the security interest only if the secured party has filed an effective financing statement that covers the farm products, and the buyer could have discovered the existence of the effective financing statement by conducting an inquiry and receiving a response and confirmation. 
   CENTRALIZED FILING SYSTEM —— FEES. The bill authorizes the secretary to establish fees for secured parties filing effective financing statements and buyers registering with the secretary. The secretary must adopt rules as necessary to implement, administer, and enforce the provisions of the system. The system is implemented on the first business day occurring three months after certification by the United States department of agriculture. The secretary must publish notice of the certification in the Iowa administrative bulletin. 
   EFFECTIVE DATES. The bill takes effect July 1, 2024, except for the provisions relating to rulemaking and certification which take effect upon enactment.
   BACKGROUND. Article 9 of the UCC provides an exception for buyers in the ordinary course of business who generally take free of a security interest created by the seller even in cases in which the security interest has been perfected and the buyer is aware of its existence (Code section 554.9320). However, notwithstanding this exception, a buyer who purchases a farm product from a person engaged in farming operations may not take free of a security interest. The federal Food Security Act of 1985, in relevant part (7 U.S.C. §1631), preempts the state’s Article 9 requirements by providing that a buyer in the ordinary course of business, a commission merchant, or a selling agent (buyer) may buy farm products without being subject to a security interest created by the seller but only if the buyer does not have actual or constructive notice of that security interest. The federal law allows states to elect between two notification options: (1) Iowa’s current law requiring the secured party to deliver direct notice to potential buyers of a secured party’s interest in the farm products within one year prior to sale, or (2) the system described in the bill. In either case, the federal law does not supersede Article 9 requirements that establish priorities among creditors.