§ 1631. — Protection for purchasers of farm products.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 7USC1631]
TITLE 7--AGRICULTURE
CHAPTER 38--DISTRIBUTION AND MARKETING OF AGRICULTURAL PRODUCTS
SUBCHAPTER I--GENERAL PROVISIONS
Sec. 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 of the individual debtors or, in the
case of debtors doing business other than as
individuals, the Internal Revenue Service taxpayer
identification number 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;
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\1\ So in original. Probably should be ``subparagraph''.
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(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.
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\2\ So in original. Probably should be ``pursuant to subparagraph
(D)''.
(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 of the debtor or, in
the case of a debtor doing business other than as an
individual, the Internal Revenue Service taxpayer
identification number 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) 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.
(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 of the debtor or, in
the case of a debtor doing business other than as an
individual, the Internal Revenue Service taxpayer
identification number 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 of the debtor or, in
the case of a debtor doing business other than as an
individual, the Internal Revenue Service taxpayer
identification number 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.
(Pub. L. 99-198, title XIII, Sec. 1324, Dec. 23, 1985, 99 Stat. 1535;
Pub. L. 104-127, title VI, Sec. 662, Apr. 4, 1996, 110 Stat. 1107; Pub.
L. 107-171, title X, Sec. 10604, May 13, 2002, 116 Stat. 512.)
Codification
Section was enacted as part of the Food Security Act of 1985, and
not as part of the Agricultural Marketing Act of 1946 which comprises
this chapter.
Amendments
2002--Subsec. (c)(4)(B). Pub. L. 107-171, Sec. 10604(a)(1),
substituted ``signed, authorized, or otherwise authenticated by the
debtor,'' for ``signed''.
Subsec. (c)(4)(C). Pub. L. 107-171, Sec. 10604(a)(2), (6),
redesignated subpar. (D) as (C) and struck out former subpar. (C) which
read as follows: ``other than in the case of an electronically
reproduced copy of the statement, is signed by the debtor;''.
Subsec. (c)(4)(D). Pub. L. 107-171, Sec. 10604(a)(6), redesignated
subpar. (E) as (D). Former subpar. (D) redesignated (C).
Subsec. (c)(4)(D)(iii). Pub. L. 107-171, Sec. 10604(a)(3)(A),
inserted ``and'' after semicolon at end.
Subsec. (c)(4)(D)(iv). Pub. L. 107-171, Sec. 10604(a)(3)(B),
substituted ``applicable, and the name of each county or parish in which
the farm products are produced or located;'' for ``applicable; and a
reasonable description of the property, includingcounty or parish in
which the property is located;''.
Subsec. (c)(4)(E). Pub. L. 107-171, Sec. 10604(a)(6), redesignated
subpar. (F) as (E). Former subpar. (E) redesignated (D).
Pub. L. 107-171, Sec. 10604(a)(4), substituted ``signed, authorized,
or otherwise authenticated by the debtor'' for ``signed''.
Subsec. (c)(4)(F). Pub. L. 107-171, Sec. 10604(a)(6), redesignated
subpar. (G) as (F). Former subpar. (F) redesignated (E).
Subsec. (c)(4)(G). Pub. L. 107-171, Sec. 10604(a)(6), redesignated
subpar. (H) as (G). Former subpar. (G) redesignated (F).
Pub. L. 107-171, Sec. 10604(a)(5), substituted ``notice signed,
authorized, or otherwise authenticated'' for ``notice signed''.
Subsec. (c)(4)(H), (I). Pub. L. 107-171, Sec. 10604(a)(6),
redesignated subpar. (I) as (H). Former subpar. (H) redesignated (G).
Subsec. (e)(1)(A)(ii)(III). Pub. L. 107-171, Sec. 10604(b)(1)(A),
inserted ``and'' after semicolon at end.
Subsec. (e)(1)(A)(ii)(IV). Pub. L. 107-171, Sec. 10604(b)(1)(B),
substituted ``crop year, and the name of each county or parish in which
the farm products are produced or located;'' for ``crop year, county or
parish, and a reasonable description of the property; and''.
Subsec. (e)(1)(A)(iii). Pub. L. 107-171, Sec. 10604(b)(2),
substituted ``similarly signed, authorized, or otherwise authenticated''
for ``similarly signed''.
Subsec. (e)(1)(A)(iv). Pub. L. 107-171, Sec. 10604(b)(3),
substituted ``notice signed, authorized, or otherwise authenticated''
for ``notice signed''.
Subsec. (e)(1)(A)(v). Pub. L. 107-171, Sec. 10604(b)(4), inserted
``contains'' before ``any payment''.
Subsec. (e)(3)(A). Pub. L. 107-171, Sec. 10604(b)(5)(A), substituted
``subsection'' for ``subparagraph''.
Subsec. (e)(3)(B). Pub. L. 107-171, Sec. 10604(b)(5)(B), substituted
a period for ``; and'' at end.
Subsec. (g)(2)(A)(ii)(III). Pub. L. 107-171, Sec. 10604(c)(1)(A),
inserted ``and'' after semicolon at end.
Subsec. (g)(2)(A)(ii)(IV). Pub. L. 107-171, Sec. 10604(c)(1)(B),
substituted ``crop year, and the name of each county or parish in which
the farm products are produced or located;'' for ``crop year, county or
parish, and a reasonable description of the property, etc.; and''.
Subsec. (g)(2)(A)(iii). Pub. L. 107-171, Sec. 10604(c)(2),
substituted ``similarly signed, authorized, or otherwise authenticated''
for ``similarly signed''.
Subsec. (g)(2)(A)(iv). Pub. L. 107-171, Sec. 10604(c)(3),
substituted ``notice signed, authorized, or otherwise authenticated''
for ``notice signed''.
Subsec. (g)(2)(A)(v). Pub. L. 107-171, Sec. 10604(c)(4), inserted
``contains'' before ``any payment''.
1996--Subsec. (c)(4)(A). Pub. L. 104-127, Sec. 662(1), substituted
``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'' for
``thereof''.
Subsec. (c)(4)(B), (C). Pub. L. 104-127, Sec. 662(2), inserted
``other than in the case of an electronically reproduced copy of the
statement,'' before ``is''.
Termination of Trust Territory of the Pacific Islands
For termination of Trust Territory of the Pacific Islands, see note
set out preceding section 1681 of Title 48, Territories and Insular
Possessions.
