7 U.S.C. § 1631 : US Code - Section 1631: Protection for purchasers of farm products

Search 7 U.S.C. § 1631 : US Code - Section 1631: Protection for purchasers of farm products

(a) Congressional findings
Congress finds that - 
(1) certain State laws permit a secured lender to enforce liens
against a purchaser of farm products even if the purchaser does
not know that the sale of the products violates the lender's
security interest in the products, lacks any practical method for
discovering the existence of the security interest, and has no
reasonable means to ensure that the seller uses the sales
proceeds to repay the lender;
(2) these laws subject the purchaser of farm products to double
payment for the products, once at the time of purchase, and again
when the seller fails to repay the lender;
(3) the exposure of purchasers of farm products to double
payment inhibits free competition in the market for farm
products; and
(4) this exposure constitutes a burden on and an obstruction to
interstate commerce in farm products.
(b) Declaration of purpose
The purpose of this section is to remove such burden on and
obstruction to interstate commerce in farm products.
(c) Definitions
For the purposes of this section - 
(1) The term "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) The term "central filing system" means a system for filing
effective financing statements or notice of such financing
statements on a statewide basis and which has been certified by
the Secretary of the United States Department of Agriculture; the
Secretary shall certify such system if the system complies with
the requirements of this section; specifically under such system -

(A) effective financing statements or notice of such
financing statements are filed with the office of the Secretary
of State of a State;
(B) the Secretary of State records the date and hour of the
filing of such statements;
(C) the Secretary of State compiles all such statements into
a master list - 
(i) organized according to farm products;
(ii) arranged within each such product - 
(I) 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; and
(II) in numerical order according to the social security
number, or other approved unique identifier, of the
individual debtors or, in the case of debtors doing
business other than as individuals, the Internal Revenue
Service taxpayer identification number, or other approved
unique identifier, of such debtors; and
(III) geographically by county or parish; and
(IV) by crop year;
(iii) containing the information referred to in paragraph
(4)(D);
(D) the Secretary of State maintains a list of all buyers of
farm products, commission merchants, and selling agents who
register with the Secretary of State, on a form indicating - 
(i) the name and address of each buyer, commission merchant
and selling agent;
(ii) the interest of each buyer, commission merchant, and
selling agent in receiving the lists described in
subparagraph (E); and
(iii) the farm products in which each buyer, commission
merchant, and selling agent has an interest;
(E) the Secretary of State distributes regularly as
prescribed by the State to each buyer, commission merchant, and
selling agent on the list described in subparagraph (D) a copy
in written or printed form of those portions of the master list
described in paragraph (!1) (C) that cover the farm products in
which such buyer, commission merchant, or selling agent has
registered an interest;
(F) the Secretary of State furnishes to those who are not
registered pursuant to (2)(D) of this section (!2) oral
confirmation within 24 hours of any effective financing
statement on request followed by written confirmation to any
buyer of farm products buying from a debtor, or commission
merchant or selling agent selling for a seller covered by such
statement.
(3) The term "commission merchant" means any person engaged in
the business of receiving any farm product for sale, on
commission, or for or on behalf of another person.
(4) The term "effective financing statement" means a statement
that - 
(A) is an original or reproduced copy of the statement, or,
in the case of a State which (under the applicable State law
provisions of the Uniform Commercial Code) allows the
electronic filing of financing statements without the signature
of the debtor, is an electronically reproduced copy of the
statement;
(B) other than in the case of an electronically reproduced
copy of the statement, is signed, authorized, or otherwise
authenticated by the debtor, and filed with the Secretary of
State of a State by the secured party;
(C) contains,
(i) the name and address of the secured party;
(ii) the name and address of the person indebted to the
secured party;
(iii) the social security number, or other approved unique
identifier, of the debtor or, in the case of a debtor doing
business other than as an individual, the Internal Revenue
Service taxpayer identification number, or other approved
unique identifier, of such debtor; and
(iv) a description of the farm products subject to the
security interest created by the debtor, including the amount
of such products where applicable, and the name of each
county or parish in which the farm products are produced or
located;
(D) must be amended in writing, within 3 months, similarly
signed, authorized, or otherwise authenticated by the debtor
and filed, to reflect material changes;
(E) remains effective for a period of 5 years from the date
of filing, subject to extensions for additional periods of 5
years each by refiling or filing a continuation statement
within 6 months before the expiration of the initial 5 year
period;
(F) lapses on either the expiration of the effective period
of the statement or the filing of a notice signed, authorized,
or otherwise authenticated by the secured party that the
statement has lapsed, whichever occurs first;
(G) is accompanied by the requisite filing fee set by the
Secretary of State; and
(H) substantially complies with the requirements of this
subparagraph even though it contains minor errors that are not
seriously misleading.
(5) (!3) The term "farm product" means an agricultural
commodity such as wheat, corn, soybeans, or a species of
livestock such as cattle, hogs, sheep, horses, or poultry used or
produced in farming operations, or a product of such crop or
livestock in its unmanufactured state (such as ginned cotton,
wool-clip, maple syrup, milk, and eggs), that is in the
possession of a person engaged in farming operations.
(6) The term "knows" or "knowledge" means actual knowledge.
(7) The term "security interest" means an interest in farm
products that secures payment or performance of an obligation.
(8) The term "selling agent" means any person, other than a
commission merchant, who is engaged in the business of
negotiating the sale and purchase of any farm product on behalf
of a person engaged in farming operations.
(9) The term "State" means each of the 50 States, the District
of Columbia, the Commonwealth of Puerto Rico, Guam, the Virgin
Islands of the United States, American Samoa, the Commonwealth of
the Northern Mariana Islands, or the Trust Territory of the
Pacific Islands.
(10) The term "person" means any individual, partnership,
corporation, trust, or any other business entity.
(11) The term "Secretary of State" means the Secretary of State
or the designee of the State.
(5) (!4) The term "approved 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 Agriculture.
(d) Purchases free of security interest
Except as provided in subsection (e) of this section and
notwithstanding any other provision of Federal, State, or local
law, a buyer who in the ordinary course of business buys a farm
product from a seller engaged in farming operations shall take free
of a security interest created by the seller, even though the
security interest is perfected; and the buyer knows of the
existence of such interest.
(e) Purchases subject to security interest
A buyer of farm products takes subject to a security interest
created by the seller if - 
(1)(A) within 1 year before the sale of the farm products, the
buyer has received from the secured party or the seller written
notice of the security interest organized according to farm
products that - 
(i) is an original or reproduced copy thereof;
(ii) contains,
(I) the name and address of the secured party;
(II) the name and address of the person indebted to the
secured party;
(III) the social security number, or other approved unique
identifier, of the debtor or, in the case of a debtor doing
business other than as an individual, the Internal Revenue
Service taxpayer identification number, or other approved
unique identifier, of such debtor; and
(IV) a description of the farm products subject to the
security interest created by the debtor, including the amount
of such products where applicable, crop year, and the name of
each county or parish in which the farm products are produced
or located;
(iii) must be amended in writing, within 3 months, similarly
signed, authorized, or otherwise authenticated and transmitted,
to reflect material changes;
(iv) will lapse on either the expiration period of the
statement or the transmission of a notice signed, authorized,
or otherwise authenticated by the secured party that the
statement has lapsed, whichever occurs first; and
(v) contains any payment obligations imposed on the buyer by
the secured party as conditions for waiver or release of the
security interest; and
(B) the buyer has failed to perform the payment obligations, or
(2) in the case of a farm product produced in a State that has
established a central filing system - 
(A) the buyer has failed to register with the Secretary of
State of such State prior to the purchase of farm products; and
(B) the secured party has filed an effective financing
statement or notice that covers the farm products being sold;
or
(3) in the case of a farm product produced in a State that has
established a central filing system, the buyer - 
(A) receives from the Secretary of State of such State
written notice as provided in subsection (c)(2)(E) or (c)(2)(F)
that specifies both the seller and the farm product being sold
by such seller as being subject to an effective financing
statement or notice; and
(B) does not secure a waiver or release of the security
interest specified in such effective financing statement or
notice from the secured party by performing any payment
obligation or otherwise.
(f) Law governing "receipt"
What constitutes receipt, as used in this section, shall be
determined by the law of the State in which the buyer resides.
(g) Commission merchants or selling agents: sales free of or
subject to security interest; law governing "receipt"
(1) Except as provided in paragraph (2) and notwithstanding any
other provision of Federal, State, or local law, a commission
merchant or selling agent who sells, in the ordinary course of
business, a farm product for others, shall not be subject to a
security interest created by the seller in such farm product even
though the security interest is perfected and even though the
commission merchant or selling agent knows of the existence of such
interest.
(2) A commission merchant or selling agent who sells a farm
product for others shall be subject to a security interest created
by the seller in such farm product if - 
(A) within 1 year before the sale of such farm product the
commission merchant or selling agent has received from the
secured party or the seller written notice of the security
interest; organized according to farm products, that - 
(i) is an original or reproduced copy thereof;
(ii) contains,
(I) the name and address of the secured party;
(II) the name and address of the person indebted to the
secured party;
(III) the social security number, or other approved unique
identifier, of the debtor or, in the case of a debtor doing
business other than as an individual, the Internal Revenue
Service taxpayer identification number, or other approved
unique identifier, of such debtor; and
(IV) a description of the farm products subject to the
security interest created by the debtor, including the amount
of such products, where applicable, crop year, and the name
of each county or parish in which the farm products are
produced or located;
(iii) must be amended in writing, within 3 months, similarly
signed, authorized, or otherwise authenticated and transmitted,
to reflect material changes;
(iv) will lapse on either the expiration period of the
statement or the transmission of a notice signed, authorized,
or otherwise authenticated by the secured party that the
statement has lapsed, whichever occurs first; and
(v) contains any payment obligations imposed on the
commission merchant or selling agent by the secured party as
conditions for waiver or release of the security interest; and
(B) the commission merchant or selling agent has failed to
perform the payment obligations;
(C) in the case of a farm product produced in a State that has
established a central filing system - 
(i) the commission merchant or selling agent has failed to
register with the Secretary of State of such State prior to the
purchase of farm products; and
(ii) the secured party has filed an effective financing
statement or notice that covers the farm products being sold;
or
(D) in the case of a farm product produced in a State that has
established a central filing system, the commission merchant or
selling agent - 
(i) receives from the Secretary of State of such State
written notice as provided in subsection (c)(2)(E) or (c)(2)(F)
of this section that specifies both the seller and the farm
products being sold by such seller as being subject to an
effective financing statement or notice; and
(ii) does not secure a waiver or release of the security
interest specified in such effective financing statement or
notice from the secured party by performing any payment
obligation or otherwise.
(3) What constitutes receipt, as used in this section, shall be
determined by the law of the State in which the buyer resides.
(h) Security agreements; identity lists; notice of identity or
accounting for proceeds; violations
(1) A security agreement in which a person engaged in farming
operations creates a security interest in a farm product may
require the person to furnish to the secured party a list of the
buyers, commission merchants, and selling agents to or through whom
the person engaged in farming operations may sell such farm
product.
(2) If a security agreement contains a provision described in
paragraph (1) and such person engaged in farming operations sells
the farm product collateral to a buyer or through a commission
merchant or selling agent not included on such list, the person
engaged in farming operations shall be subject to paragraph (3)
unless the person - 
(A) has notified the secured party in writing of the identity
of the buyer, commission merchant, or selling agent at least 7
days prior to such sale; or
(B) has accounted to the secured party for the proceeds of such
sale not later than 10 days after such sale.
(3) A person violating paragraph (2) shall be fined $5,000 or 15
per centum of the value or benefit received for such farm product
described in the security agreement, whichever is greater.
(i) Regulations
The Secretary of Agriculture shall prescribe regulations not
later than 90 days after December 23, 1985, to aid States in the
implementation and management of a central filing system.
(j) Effective date
This section shall become effective 12 months after December 23,
1985.