Senate Study Bill 3167 - Introduced SENATE FILE _____ BY (PROPOSED COMMITTEE ON AGRICULTURE BILL BY CHAIRPERSON DRISCOLL) A BILL FOR An Act establishing a central filing system relating to 1 security interests in farm products, providing fees, and 2 including contingent implementation and effective date 3 provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5829XC (1) 90 da/ns
S.F. _____ Section 1. Section 554.9102, subsection 4, Code 2024, is 1 amended to read as follows: 2 4. Federal Food Security Act. 3 a. For purposes of the Federal Food Security Act, 7 U.S.C. 4 1631, written notice shall be considered to be received by the 5 person to whom it was delivered if the notice is delivered in 6 hand to the person, or mailed by certified or registered mail 7 with the proper postage and properly addressed to the person to 8 whom it was sent. The refusal of a person to whom a notice is 9 so mailed to accept delivery of the notice shall be considered 10 receipt. 11 b. This subsection is repealed on the date that this Act is 12 implemented as provided in this Act. 13 Sec. 2. NEW SECTION . 554C.1 Definitions. 14 As used in this chapter, unless the context otherwise 15 requires: 16 1. Buyer in the ordinary course of business means a person 17 who, in the ordinary course of business, buys farm products 18 from a person engaged in farming operations who is in the 19 business of selling farm products. 20 2. Central filing system means a system for filing 21 effective financing statements, and statements amending, 22 continuing, or terminating effective financing statements as 23 provided in section 554C.4. 24 3. Commission merchant means a person engaged in the 25 business of receiving any farm product for sale, on commission, 26 or for or on behalf of another person. 27 4. Effective financing statement means a financing 28 statement required to be filed as part of the central filing 29 system as provided in section 554C.6. 30 5. Secretary means the secretary of state. 31 6. Selling agent means a person, other than a commission 32 merchant, who is engaged in the business of negotiating the 33 sale and purchase of a farm product on behalf of a person 34 engaged in farming operations. 35 -1- LSB 5829XC (1) 90 da/ns 1/ 12
S.F. _____ Sec. 3. NEW SECTION . 554C.2 Special definitions. 1 To every extent consistent with the application of federal 2 law, unless the context otherwise requires: 3 1. Agricultural lien means the same as defined in section 4 554.9102. 5 2. Buyer means a buyer in the ordinary course of business, 6 a commission merchant, or a selling agent. 7 3. Crop year means the calendar year in which a crop is or 8 will be harvested, animals are born or acquired, or poultry or 9 eggs are or will be sold. 10 4. Debtor means a person who has an interest other than a 11 security interest in a farm product, or any other person who 12 owns a farm product and subjects the farm product to a security 13 interest whether or not that person owes a debt to the secured 14 party. 15 5. Farm products means the same as defined in section 16 554.9102. 17 6. Farming operation means the same as defined in section 18 554.9102. 19 7. a. Secured party means a secured party in whose favor 20 a security interest in farm products is created. 21 b. Secured party includes the holder of a lien, including 22 an agricultural lien, on farm products. 23 8. a. Security interest means an interest in farm 24 products that secures payment or performance of an obligation. 25 b. Security interest includes a lien created by statute, 26 including an agricultural lien. 27 9. Signature means a symbol used to sign, execute, or 28 otherwise to encrypt or similarly process a record, in whole or 29 in part, with the present intent of authenticating the record 30 for purposes of identifying the person adopting or accepting 31 the record. 32 10. Unique identifier means a number, combination 33 of numbers and letters, or other identifier selected by 34 the secretary of state using a selection system or method 35 -2- LSB 5829XC (1) 90 da/ns 2/ 12
S.F. _____ approved by the secretary of the United States department of 1 agriculture. 2 Sec. 4. NEW SECTION . 554C.3 Chapter consistent with uniform 3 commercial code. 4 This chapter shall be interpreted in conjunction with 5 chapter 554, and terms and phrases used in this chapter shall, 6 to every extent practicable, be interpreted consistently with 7 chapter 554, article 9. 8 Sec. 5. NEW SECTION . 554C.4 Central filing system 9 establishment and certification. 10 1. The secretary of state shall establish and administer a 11 central filing system for the electronic filing and examining 12 of effective financing statements and statements amending, 13 continuing, or terminating effective financing statements on 14 a statewide basis. 15 2. The central filing system shall be designed to allow 16 persons to file and examine effective financing statements 17 and statements amending, continuing, or terminating effective 18 financing statements using the internet. The secretary may 19 provide for the filing and examining of statements amending, 20 continuing, or terminating effective financing statements in a 21 paper format. 22 3. The central financing system must comply with the 23 requirements set forth in 7 U.S.C. 1631, as certified by 24 the United States secretary of agriculture prior to the 25 implementation date of this Act. 26 Sec. 6. NEW SECTION . 554C.5 Effective financing statements 27 filing requirements. 28 1. The secretary of state shall provide for filing effective 29 financing statements, and statements amending, continuing, or 30 terminating effective financing statements, as provided in 31 this section. The secretary shall prescribe all forms to be 32 used for filing. The presentation for filing of an effective 33 financing statement and statement amending, continuing, or 34 terminating an effective financing statement and the acceptance 35 -3- LSB 5829XC (1) 90 da/ns 3/ 12
S.F. _____ of any such statement by the secretary constitutes filing under 1 this section. 2 2. An effective financing statement is valid if the 3 statement substantially complies with the requirements of this 4 section even though it contains minor errors that are not 5 seriously misleading. 6 3. An effective financing statement must contain 7 information that the secretary requires to comply with 7 U.S.C. 8 1631 or to administer this section. The statement must be 9 an original or reproduced copy which is signed by the secured 10 party and the debtor. If filed electronically, the debtor is 11 not required to sign the statement. The statement must be 12 filed with the secretary by the secured party. The secretary 13 shall record the date and hour of the filing of the statement. 14 4. An effective financing statement must contain all of the 15 following: 16 a. The name and address of the secured party. 17 b. The name and address of the debtor. 18 c. The unique identifier of the debtor. 19 d. A description of the farm products subject to the 20 security interest, the county in Iowa where the farm products 21 are produced or will be produced, the crop year unless every 22 crop of the farm product in question for the duration of 23 the effective financing statement is to be subject to the 24 particular security interest, and further details of the 25 farm products subject to the security interest if needed to 26 distinguish it from other quantities of farm products owned by 27 the same person or persons but not subject to the particular 28 security interest. 29 e. Any other information that the secretary requires to 30 comply with 7 U.S.C. 1631 or to administer this section. 31 5. The effective financing statement may cover more than one 32 farm product located in more than one county. 33 6. A continuation statement shall be signed by the secured 34 party, identify the original effective financing statement by 35 -4- LSB 5829XC (1) 90 da/ns 4/ 12
S.F. _____ file number, and state that the original financing statement 1 is still effective. 2 Sec. 7. NEW SECTION . 554C.6 Effective financing statements 3 effectiveness. 4 1. The effective financing statement shall remain effective 5 for a period of five years from the date of filing, subject to 6 extensions for additional periods of five years each by filing 7 or refiling a continuation statement within six months before 8 the expiration of the five-year period. 9 2. Upon timely filing of a continuation statement, the 10 effectiveness of the original financing statement shall be 11 continued for five years after the last date to which the prior 12 filing was effective, whereupon it shall lapse unless another 13 continuation statement is filed prior to the lapse. Succeeding 14 continuation statements may be filed in the same manner to 15 continue the effectiveness of the original effective financing 16 statement. 17 3. The effective financing statement shall be amended in 18 writing to reflect a material change within three months of the 19 material change. The amendment shall be signed and filed as 20 required for an original effective financing statement. If the 21 statement is filed electronically, the signature of the debtor 22 shall not be required. 23 4. a. The effective financing statement lapses upon the 24 expiration of the effective period of the effective financing 25 statement or is terminated upon the filing of a statement 26 signed by the secured party that the effective financing 27 statement is terminated. 28 b. If the effective financing statement has not lapsed or is 29 not terminated and there are no outstanding secured obligations 30 and no commitments to make advances, incur obligations, or 31 otherwise give value, the debtor may notify the secured party 32 in writing to terminate the effective financing statement. 33 c. Until the debtor instructs the secured party in writing 34 to terminate the effective financing statement, the secured 35 -5- LSB 5829XC (1) 90 da/ns 5/ 12
S.F. _____ party has no obligation to terminate the statement. 1 d. Within thirty days after receipt by the secured party 2 of the statement from the debtor to terminate the effective 3 financing statement, the secured party shall file with the 4 secretary a termination statement with respect to the effective 5 financing statement. 6 Sec. 8. NEW SECTION . 554C.7 Master list organization 7 and contents. 8 1. The secretary of state shall compile the filed effective 9 financing statements into a master list. 10 2. The master list shall be organized according to farm 11 products. The master list shall contain information required 12 to be contained in effective financing statements filed with 13 the secretary. The secretary shall arrange the master list for 14 each farm product as follows: 15 a. In alphabetical order according to the last name of the 16 individual debtors or, in the case of debtors doing business 17 other than as individuals, the first word in the name of such 18 debtors. 19 b. In numerical order according to the unique identifiers 20 of the debtors. 21 c. Geographically by county. 22 d. By crop year. 23 3. The master list shall include information regarding 24 buyers who register with the secretary on forms prescribed by 25 the secretary as provided in this section. The secretary may 26 require that a buyer be classified as a buyer in the ordinary 27 course of business, commission merchant, or selling agent. 28 4. The secretary shall maintain a list of all buyers of farm 29 products who register with the secretary. A buyer registering 30 with the secretary shall complete forms requiring all of the 31 following information, as prescribed by the secretary: 32 a. The name and address of the buyer. 33 b. The interest of the buyer in receiving the list. 34 c. The farm products in which the buyer has an interest. 35 -6- LSB 5829XC (1) 90 da/ns 6/ 12
S.F. _____ d. Any other information that the secretary determines is 1 necessary to comply with 7 U.S.C. 1631 or to administer this 2 section. 3 Sec. 9. NEW SECTION . 554C.8 Master list distribution and 4 inquiries. 5 1. The secretary of state shall distribute to each 6 registered buyer a copy in written, printed, or electronic form 7 of those portions of the master list relating to farm products 8 in which the buyer has registered an interest. The secretary 9 may provide for the distribution of the master list or portions 10 of the list on any other medium requested by a registered 11 buyer. If a registered buyer so requests, the information 12 provided to the buyer may be limited to a county or group of 13 counties where the farm products are produced or to a crop year 14 or crop years or to a combination of those identifiers. 15 2. Distribution is subject to all of the following: 16 a. The distribution shall be by first class or electronic 17 mail. 18 b. The secretary shall adopt rules pursuant to chapter 17A 19 establishing the dates upon which the quarterly distributions 20 will be made, the dates after which a filing of an effective 21 financing statement will not be reflected on the next quarterly 22 distribution of lists, and the dates by which a buyer must 23 complete a registration to receive the next quarterly list. 24 3. The secretary shall remove information pertaining to 25 lapsed and terminated effective financing statements from the 26 master list prior to preparation of the lists required to be 27 distributed. 28 4. Upon written notice to the secretary by a registered 29 buyer requesting termination of the distribution of the 30 list to the registered buyer, the secretary shall terminate 31 distribution of the list to the registered buyer. 32 5. Oral and written inquiries by a buyer not registered 33 pursuant to section 554C.7 may be made to the secretary during 34 hours determined by the secretary. 35 -7- LSB 5829XC (1) 90 da/ns 7/ 12
S.F. _____ a. The secretary may provide for a computerized system 1 for inquiry and confirmation which may be used in lieu of the 2 inquiry and confirmation system otherwise provided for in this 3 section. 4 b. Written confirmation of the information provided orally 5 in response to the inquiry shall be delivered by first class 6 mail or electronic mail to the buyer, at an address provided 7 by the buyer, by the secretary not later than the second 8 regular business day following the day on which the inquiry was 9 received. 10 6. In order to verify the existence or nonexistence of a 11 security interest, a buyer may request a seller to disclose the 12 sellers unique identifier. 13 Sec. 10. NEW SECTION . 554C.9 Perfection creation of 14 superior interests. 15 1. If a buyer fails to register with the secretary of 16 state prior to the purchase of farm products, the buyer takes 17 subject to a security interest in the farm products only if the 18 secured party has filed an effective financing statement that 19 covers the farm products being sold, and the buyer could have 20 discovered the existence of the effective financing statement 21 prior to the purchase by accessing the database containing 22 effective financing statements filed electronically with the 23 secretary. 24 2. If the buyer registers with the secretary prior to the 25 purchase of the farm products, the buyer takes subject to a 26 security interest in the farm products only if the secured 27 party has filed an effective financing statement that covers 28 the farm products being sold, and the buyer does not secure 29 a waiver or release of the security interest as specified in 30 the effective financing statement from the secured party. 31 If a buyer in the ordinary course of business buying farm 32 products covered by the central filing system as provided in 33 section 554C.4 tenders to the seller the total purchase price 34 by means of a check or any other form of payment payable to 35 -8- LSB 5829XC (1) 90 da/ns 8/ 12
S.F. _____ such seller and each security interest holder of the seller 1 identified in the central filing system for such products and 2 if such security interest holder authorizes the negotiation 3 of such check or other form of payment, such authorization or 4 endorsement and payment thereof shall constitute a waiver or 5 release of the security interest specified to the extent of 6 the amount of the instrument. Such waiver or release of the 7 security interest shall not serve to establish or alter in any 8 way security interest priorities under Iowa law. 9 Sec. 11. NEW SECTION . 554C.10 Fees. 10 1. The secretary of state shall establish fees for initially 11 filing an effective financing statement, or a statement 12 amending, continuing, or terminating an effective financing 13 statement. The fees shall not be more than provided for filing 14 financing statements as provided in section 554.9525. 15 2. Notwithstanding section 22.3, the secretary may charge 16 a buyer a fee for registering to receive a master list or 17 for receiving responses to inquiries which are accessed in a 18 printed format. The secretary shall not charge a buyer a fee 19 for registering to receive a master list or for responding to 20 buyer inquiries, including by examining or printing effective 21 financing statements, and statements amending, continuing, or 22 terminating effective financing statements which are accessed 23 in an electronic format. 24 3. All moneys received by the secretary under this section 25 shall be handled in the same manner as repayment receipts, as 26 defined in section 8.2, and shall be used by the secretary 27 exclusively for the administration of this chapter. 28 Sec. 12. NEW SECTION . 554C.11 Rules. 29 The secretary of state shall adopt rules pursuant to chapter 30 17A necessary or desirable to administer this chapter. 31 Sec. 13. DIRECTIONS TO SECRETARY OF STATE. 32 1. The secretary of state shall adopt rules necessary 33 to implement this Act, including by requesting certification 34 of a central filing system as provided in this Act pursuant 35 -9- LSB 5829XC (1) 90 da/ns 9/ 12
S.F. _____ to 7 U.S.C. 1631. If it is necessary to obtain federal 1 certification, the secretary of state may adopt rules providing 2 additional requirements made in conformity with 7 U.S.C. 1631. 3 2. If the secretary of the United States department of 4 agriculture rejects federal certification, the secretary of 5 state shall propose legislation prior to the next session of 6 the general assembly necessary to comply with the certification 7 requirements of 7 U.S.C. 1631. 8 Sec. 14. CONTINGENT IMPLEMENTATION. The implementation of 9 this Act is contingent upon federal certification of a central 10 filing system as provided in this Act pursuant to 7 U.S.C. 11 1631. The provisions of this Act shall be implemented on 12 the first business day three months after the date of such 13 certification. The secretary of state shall provide notice of 14 the implementation date in the Iowa administrative bulletin 15 in three consecutive issues prior to the implementation date. 16 Until the implementation date, persons shall take subject 17 to or free of a security interest, including a lien, in the 18 same manner and according to the same procedures applicable 19 immediately prior to the implementation date. 20 Sec. 15. EFFECTIVE DATES. 21 1. Except as provided in subsection 2, this Act takes effect 22 July 1, 2024. 23 2. The sections of this Act providing for the adoption 24 of rules by the secretary of state in preparation to request 25 certification of a central filing system as provided in this 26 Act pursuant to 7 U.S.C. 1631 take effect upon enactment. 27 EXPLANATION 28 The inclusion of this explanation does not constitute agreement with 29 the explanations substance by the members of the general assembly. 30 CENTRALIZED FILING SYSTEM GENERAL. This bill creates 31 a centralized, statewide filing system (system) for security 32 interests in farm products to notify buyers of farm products 33 subject to an attached security interest. The system is to 34 facilitate notice under Article 9 of the Uniform Commercial 35 -10- LSB 5829XC (1) 90 da/ns 10/ 12
S.F. _____ Code (UCC) (Code chapter 554). Farm products include goods 1 other than standing timber produced as part of a farming 2 operation and includes crops, aquatic goods, livestock, 3 supplies used or produced on the farming operation, or products 4 of crops or livestock in an unmanufactured form (Code section 5 554.9102). The system must be certified by the United States 6 department of agriculture. 7 The bill allows a person who has a secured interest attached 8 to farm products to complete and file a document referred to 9 as an effective financing statement or a statement amending, 10 continuing, or terminating the effective financing statement, 11 with the secretary of state. The secretary must compile 12 information contained in the effective financing statements 13 into a master list organized according to farm products which 14 the secretary must regularly distribute to persons designated 15 as buyers of farm products registered with the secretary. This 16 includes buyers in the ordinary course of business, commission 17 merchants, and selling agents. The secretary may also respond 18 to verbal or written inquiries by buyers including unregistered 19 buyers and deliver a written confirmation to inquiring buyers 20 regarding whether a farm product is subject to a security 21 interest. 22 CENTRALIZED FILING SYSTEM REGISTRATION. If a buyer 23 registers with the secretary prior to the purchase of farm 24 products, the registered buyer takes subject to the security 25 interest only if the secured party has filed an effective 26 financing statement that covers the farm products being 27 sold, unless the registered buyer secures a release of the 28 security interest. If a buyer fails to register with the 29 secretary, the buyer takes subject to the security interest 30 only if the secured party has filed an effective financing 31 statement that covers the farm products, and the buyer could 32 have discovered the existence of the effective financing 33 statement by conducting an inquiry and receiving a response and 34 confirmation. 35 -11- LSB 5829XC (1) 90 da/ns 11/ 12
S.F. _____ CENTRALIZED FILING SYSTEM FEES. The bill authorizes 1 the secretary to establish fees for secured parties filing 2 effective financing statements and buyers registering with 3 the secretary. The secretary must adopt rules as necessary 4 to implement, administer, and enforce the provisions of the 5 system. The system is implemented on the first business day 6 occurring three months after certification by the United States 7 department of agriculture. The secretary must publish notice 8 of the certification in the Iowa administrative bulletin. 9 EFFECTIVE DATES. The bill takes effect July 1, 2024, except 10 for the provisions relating to rulemaking and certification 11 which take effect upon enactment. 12 BACKGROUND. Article 9 of the UCC provides an exception for 13 buyers in the ordinary course of business who generally take 14 free of a security interest created by the seller even in cases 15 in which the security interest has been perfected and the buyer 16 is aware of its existence (Code section 554.9320). However, 17 notwithstanding this exception, a buyer who purchases a farm 18 product from a person engaged in farming operations may not 19 take free of a security interest. The federal Food Security 20 Act of 1985, in relevant part (7 U.S.C. 1631), preempts the 21 states Article 9 requirements by providing that a buyer in 22 the ordinary course of business, a commission merchant, or 23 a selling agent (buyer) may buy farm products without being 24 subject to a security interest created by the seller but only 25 if the buyer does not have actual or constructive notice of 26 that security interest. The federal law allows states to 27 elect between two notification options: (1) Iowas current 28 law requiring the secured party to deliver direct notice to 29 potential buyers of a secured partys interest in the farm 30 products within one year prior to sale, or (2) the system 31 described in the bill. In either case, the federal law does 32 not supersede Article 9 requirements that establish priorities 33 among creditors. 34 -12- LSB 5829XC (1) 90 da/ns 12/ 12