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, except that the
            numerical list containing social security or taxpayer
            identification numbers may be encrypted for security
            purposes if the Secretary of State provides a method by
            which an effective search of the encrypted numbers may be
            conducted to determine whether the farm product at issue is
            subject to 1 or more liens; 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 subparagraph (C) that cover the farm products in
        which such buyer, commission merchant, or selling agent has
        registered an interest except that - 
            (i) the distribution of the portion of the master list may
          be in electronic, written, or printed form; and
            (ii) if social security or taxpayer identification numbers
          on the master list are encrypted, the Secretary of State may
          distribute the master list only - 
              (I) by compact disc or other electronic media that
            contains - 
                (aa) the recorded list of debtor names; and
                (bb) an encryption program that enables the buyer,
              commission merchant, and selling agent to enter a social
              security number for matching against the recorded list of
              encrypted social security or taxpayer identification
              numbers; and

              (II) on the written request of the buyer, commission
            merchant, or selling agent, by paper copy of the list to
            the requestor;

          (F) the Secretary of State furnishes to those who are not
        registered pursuant to (2)(D) of this section (!1) 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) (!2) 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) (!3) 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.