Iowa-2019-SSB3078-Introduced

S.F. _____ Section 1. Section 554.9102, subsection 4, Code 2020, 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whom a notice is 9 so mailed to accept delivery of the notice shall be considered 10 receipt. 11 b. This subsection is repealed on the date that this Act is 12 implemented as provided in this Act. 13 Sec. 2.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” means a person who, in the ordinary course of 17 business, buys farm products from a person engaged in farming 18 operations who is in the business of selling farm products. A 19 buyer includes a commission merchant or selling agent. 20 2. “Central filing system” means a system for filing 21 effective financing statements, and statements amending, 22 continuing, or terminating effective financing statements, 23 established under 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. “Crop year” means the calendar year in which a crop is or 28 will be harvested, animals are born or acquired, or poultry or 29 eggs are or will be sold. 30 5. “Effective financing statement” means a financing 31 statement required to be filed as part of the central filing 32 system as provided in section 554C.6. 33 6. “Secretary” means the secretary of state. 34 7. “Security interest” means an interest in farm products 35 -1- LSB 5135XC (2) 88 da/jh 1/ 12

S.F. _____ that secures payment or performance of an obligation in the 1 same manner as provided in chapter 554. 2 8. “Selling agent” means a person, other than a commission 3 merchant, who is engaged in the business of negotiating the 4 sale and purchase of a farm product on behalf of a person 5 engaged in farming operations. 6 9. “Signature” means to sign, execute, or otherwise adopt a 7 symbol or to encrypt or similarly process a record, in whole or 8 in part, with the present intent of authenticating the record 9 for purposes of identifying the person adopting or accepting 10 the record. 11 Sec. 3. NEW SECTION . 554C.2 Special definitions. 12 To every extent consistent with the application of federal 13 law, unless the context otherwise requires: 14 1. “Agricultural lien” means the same as defined in section 15 554.9102. 16 2. “Debtor” means a debtor as defined in section 554.9102 17 who has an interest other than a security interest or lien in a 18 farm product, or any other person who owns a farm product and 19 subjects the farm product to a security interest whether or not 20 that person owes a debt to the secured party. 21 3. “Farm products” means the same as defined in section 22 554.9102. 23 4. “Farming operation” means the same as defined in section 24 554.9102. 25 5. “Secured party” means a secured party as defined in 26 section 554.9102 in whose favor a security interest in farm 27 products is created. 28 6. “Security interest” means an interest in farm products 29 that secures payment or performance of an obligation in the 30 same manner as provided in chapter 554. 31 7. “Unique identifier” means a number, combination of 32 numbers and letters, or other identifier selected by the 33 secretary using a selection system or method approved by the 34 United States secretary of agriculture. 35 -2- LSB 5135XC (2) 88 da/jh 2/ 12

S.F. _____ Sec. 4. NEW SECTION . 554C.3 Chapter interpreted in 1 conjunction with uniform commercial code. 2 This chapter shall be interpreted in conjunction with 3 chapter 554, and terms and phrases used in this chapter shall, 4 to every extent practicable, be interpreted consistently with 5 chapter 554, article 9. 6 Sec. 5. NEW SECTION . 554C.4 Central filing system —— 7 establishment and certification. 8 1. The secretary shall establish and administer a central 9 filing system, for filing and examining of effective financing 10 statements and statements amending, continuing, or terminating 11 effective financing statements. 12 2. The central filing system shall be designed to allow 13 persons to file and examine statements described in subsection 14 1 using the internet. The secretary may provide for the filing 15 and examining of the statements in a paper format. 16 3. The central financing system must comply with the 17 requirements set forth in 7 U.S.C. §1631, and must be certified 18 by the United States secretary of agriculture prior to the date 19 that this Act is implemented. 20 Sec. 6. NEW SECTION . 554C.5 Filing requirements. 21 1. The secretary shall provide for filing effective 22 financing statements, and statements amending, continuing, or 23 terminating effective financing statements, as provided in this 24 section. The secretary shall prescribe all forms to be used 25 for filing. The presentation of a statement for filing and the 26 acceptance of the statement by the secretary constitutes filing 27 under this section. 28 2. An effective financing statement is valid if the 29 statement substantially complies with the requirements of this 30 section even though it contains minor errors that are not 31 seriously misleading. 32 3. An effective financing statement must be an original or 33 reproduced copy which is signed by the secured party and the 34 debtor. If filed electronically, the debtor is not required to 35 -3- LSB 5135XC (2) 88 da/jh 3/ 12

S.F. _____ sign the effective financing statement. The statement must be 1 filed with the secretary by the secured party. The secretary 2 shall record the date and hour of the filing of the effective 3 financing statement. 4 4. An effective financing statement must contain all of the 5 following: 6 a. The name and address of the secured party. 7 b. The name and address of the debtor. 8 c. The unique identifier of the debtor. 9 d. A description of the farm products subject to the 10 security interest, the county in Iowa where the farm products 11 are produced or will be produced, the crop year unless every 12 crop of the farm product in question for the duration of 13 the effective financing statement is to be subject to the 14 particular security interest, and further details of the 15 farm products subject to the security interest if needed to 16 distinguish it from other quantities of farm products owned by 17 the same person or persons but not subject to the particular 18 security interest. 19 e. Information that the secretary requires to comply with 7 20 U.S.C. §1631 or to administer this section. 21 5. The effective financing statement may cover more than one 22 farm product located in more than one county. 23 6. A continuation statement shall be signed by the secured 24 party, identify the original effective financing statement by 25 file number, and state that the original financing statement 26 is still effective. 27 Sec. 7. NEW SECTION . 554C.6 Effectiveness. 28 1. An effective financing statement shall remain effective 29 for a period of five years from the date of filing, subject to 30 extensions for additional periods of five years each by filing 31 or refiling a continuation statement within six months before 32 the expiration of the five-year period. 33 2. Upon timely filing of a continuation statement, the 34 effectiveness of the original financing statement shall be 35 -4- LSB 5135XC (2) 88 da/jh 4/ 12

S.F. _____ continued for five years after the last date to which the prior 1 filing was effective, whereupon it shall lapse unless another 2 continuation statement is filed prior to the lapse. Succeeding 3 continuation statements may be filed in the same manner to 4 continue the effectiveness of the original effective financing 5 statement. 6 3. The effective financing statement shall be amended in 7 writing to reflect a material change within three months of the 8 material change. The amendment shall be signed and filed as 9 required for an original effective financing statement. If the 10 statement is filed electronically, the signature of the debtor 11 shall not be required. 12 4. a. The effective financing statement lapses upon the 13 expiration of the effective period of the effective financing 14 statement or is terminated upon the filing of a statement 15 signed by the secured party that the effective financing 16 statement is terminated. 17 b. If the effective financing statement has not lapsed or is 18 not terminated and there are no outstanding secured obligations 19 and no commitments to make advances, incur an obligation, or 20 otherwise give value, the debtor may notify the secured party 21 in writing to terminate the effective financing statement. 22 c. Until the debtor instructs the secured party in writing 23 to terminate the effective financing statement, the secured 24 party has no obligation to terminate the effective financing 25 statement. 26 d. Within thirty days after receipt by the secured party 27 of the statement from the debtor to terminate the effective 28 financing statement, the secured party shall file with the 29 secretary a termination statement with respect to the effective 30 financing statement. 31 Sec. 8. NEW SECTION . 554C.7 Master list —— organization 32 and contents. 33 1. The secretary shall compile the effective financing 34 statements into a master list. 35 -5- LSB 5135XC (2) 88 da/jh 5/ 12

S.F. _____ 2. The master list shall be organized according to farm 1 products. The master list shall contain information required 2 to be contained in effective financing statements filed with 3 the secretary. The secretary shall arrange the master list for 4 each farm product as follows: 5 a. In alphabetical order according to the last name of the 6 individual debtors or, in the case of debtors doing business 7 other than as individuals, the first word in the name of such 8 debtors. 9 b. In numerical order according to the unique identifiers 10 of the debtors. 11 c. Geographically by county. 12 d. By crop year. 13 3. The master list shall include information regarding 14 buyers who register with the secretary on forms prescribed by 15 the secretary as provided in this section. 16 4. The secretary shall maintain a list of all buyers of farm 17 products who register with the secretary. A buyer registering 18 with the secretary shall complete forms requiring all of the 19 following information, as prescribed by the secretary: 20 a. The name and address of the buyer. 21 b. The interest of the buyer in receiving the list. 22 c. The farm products in which the buyer has an interest. 23 Sec. 9. NEW SECTION . 554C.8 Master list —— distribution and 24 inquiries. 25 1. The secretary shall distribute to each registered buyer a 26 copy in written, printed, or electronic form of those portions 27 of the master list relating to farm products in which the buyer 28 has registered an interest. The secretary may provide for the 29 distribution of the master list or portions of the list on any 30 other medium requested by a registered buyer. If a registered 31 buyer so requests, the information provided to the buyer may 32 be limited to a county or group of counties where the farm 33 products are produced or to a crop year or crop years or to a 34 combination of those identifiers. 35 -6- LSB 5135XC (2) 88 da/jh 6/ 12

S.F. _____ 2. Distribution is subject to all of the following: 1 a. The distribution shall be by first class or electronic 2 mail. 3 b. The secretary shall adopt rules pursuant to chapter 17A 4 establishing the dates upon which the quarterly distributions 5 will be made, the dates after which a filing of an effective 6 financing statement will not be reflected on the next quarterly 7 distribution of lists, and the dates by which a buyer must 8 complete a registration to receive the next quarterly list. 9 3. The secretary shall remove information pertaining to 10 lapsed and terminated effective financing statements from the 11 master list prior to preparation of the lists required to be 12 distributed. 13 4. Upon written notice to the secretary by a registered 14 buyer requesting termination of the distribution of the 15 list to the registered buyer, the secretary shall terminate 16 distribution of the list to the registered buyer. 17 5. Oral and written inquiries by a buyer not registered 18 pursuant to section 554C.7 may be made to the secretary during 19 hours determined by the secretary. 20 a. The secretary may provide for a computerized system 21 for inquiry and confirmation which may be used in lieu of the 22 inquiry and confirmation system otherwise provided for in this 23 section. 24 b. Written confirmation of the information provided orally 25 in response to the inquiry shall be delivered by first class 26 mail or electronic mail to the buyer, at an address provided 27 by the buyer, by the secretary not later than the second 28 regular business day following the day on which the inquiry was 29 received. 30 6. In order to verify the existence or nonexistence of a 31 security interest, a buyer may request a seller to disclose the 32 seller’s unique identifier. 33 Sec. 10. NEW SECTION . 554C.9 Perfection —— creation of 34 superior interests. 35 -7- LSB 5135XC (2) 88 da/jh 7/ 12

S.F. _____ 1. If a buyer fails to register with the secretary prior 1 to the purchase of farm products, the buyer takes subject 2 to a security interest in the farm products only if the 3 secured party has filed an effective financing statement that 4 covers the farm products being sold, and the buyer could have 5 discovered the existence of the effective financing statement 6 prior to the purchase by accessing the database containing 7 effective financing statements filed electronically with the 8 secretary. 9 2. If the buyer registers with the secretary prior to the 10 purchase of the farm products, the buyer takes subject to a 11 security interest in the farm products only if the secured 12 party has filed an effective financing statement that covers 13 the farm products being sold, and the buyer does not secure 14 a waiver or release of the security interest as specified in 15 the effective financing statement from the secured party. 16 If a buyer in the ordinary course of business buying farm 17 products covered by the central filing system as provided in 18 section 554C.4 tenders to the seller the total purchase price 19 by means of a check or any other form of payment payable to 20 such seller and each security interest holder of the seller 21 identified in the central filing system for such products and 22 if such security interest holder authorizes the negotiation 23 of such check or other form of payment, such authorization or 24 endorsement and payment thereof shall constitute a waiver or 25 release of the security interest specified to the extent of 26 the amount of the instrument. Such waiver or release of the 27 security interest shall not serve to establish or alter in any 28 way security interest or lien priorities under Iowa law. 29 Sec. 11. NEW SECTION . 554C.10 Fees. 30 1. The secretary shall establish fees for initially filing 31 an effective financing statement, and for filing a statement 32 amending, continuing, or terminating an effective financing 33 statement. The fees shall not be more than provided for filing 34 financing statements as provided in section 554.9525. 35 -8- LSB 5135XC (2) 88 da/jh 8/ 12

S.F. _____ 2. a. Except as provided in paragraph “b” , the secretary 1 may charge a buyer a fee for registering to receive a master 2 list or for receiving responses to inquiries which are accessed 3 in a printed format. 4 b. The secretary shall not charge a buyer a fee for 5 registering to receive a master list or for responding to 6 buyer inquiries, including by examining or printing effective 7 financing statements, and statements amending, continuing, or 8 terminating effective financing statements which are accessed 9 in an electronic format. 10 3. All moneys received by the secretary under this section 11 shall be handled in the same manner as repayment receipts, as 12 defined in section 8.2, and shall be used by the secretary 13 exclusively for the administration of this chapter. 14 Sec. 12. NEW SECTION . 554C.11 Rules. 15 The secretary shall adopt rules pursuant to chapter 17A 16 necessary or desirable to administer this chapter. 17 Sec. 13. DIRECTIONS TO THE SECRETARY OF STATE. 18 Notwithstanding the date that all provisions of this Act 19 become applicable, the secretary of state shall adopt rules 20 necessary to implement this Act. If necessary to obtain 21 federal certification of the central filing system, additional 22 or alternative requirements made in conformity with 7 U.S.C. 23 §291631 may be imposed by the secretary of state by rule. The 24 additional or alternative requirements shall expire not later 25 than July 1 of the succeeding legislative session. 26 Sec. 14. CONTINGENT IMPLEMENTATION. 27 1. The provisions of chapter 554C, as enacted in this Act, 28 shall only be implemented, including administered, by the 29 secretary of state, beginning ninety days after the publication 30 date of the edition of the Iowa administrative bulletin that 31 includes a statement by the secretary of state verifying all 32 of the following: 33 a. The secretary of state has adequate funding to establish 34 and administer the central filing system as established in this 35 -9- LSB 5135XC (2) 88 da/jh 9/ 12

S.F. _____ Act. 1 b. The central financing system as established in this 2 Act has been certified by the United States secretary of 3 agriculture as provided in 7 U.S.C. §1631. 4 2. The secretary of state shall forward a copy of the 5 statement described in subsection 1 to the Iowa Code editor 6 prior to publication in the Iowa administrative bulletin. 7 3. The secretary of state shall provide notice describing 8 the implementation of this Act in three consecutive editions of 9 the Iowa administrative bulletin prior to the implementation 10 date of this Act as provided in subsection 1. 11 4. Until the implementation date of this Act a person shall 12 take subject to or free of a security interest in farm products 13 in the same manner and according to the same procedures 14 applicable immediately prior to this Act’s implementation date. 15 Sec. 15. EFFECTIVE DATE. This Act, being deemed of 16 immediate importance, takes effect upon enactment. 17 EXPLANATION 18 The inclusion of this explanation does not constitute agreement with 19 the explanation’s substance by the members of the general assembly. 20 GENERAL. This bill provides for credit transactions 21 involving agricultural goods which include crops (e.g., grain) 22 and other farm products governed by Iowa’s version of the 23 Uniform Commercial Code (UCC), Code chapter 554, by regulating 24 the commercial relationships existing between debtors, 25 creditors, and buyers. 26 CENTRALIZED FILING SYSTEM. The bill creates a centralized 27 filing system (system) for security interests in farm products 28 to notify buyers of farm products subject to an attached 29 security interest. Farm products include goods other than 30 standing timber produced as part of a farming operation and 31 includes crops, aquatic goods, livestock, supplies used or 32 produced on the farming operation, or products of crops or 33 livestock in an unmanufactured form (Code section 554.9102). 34 The system must be certified by the United States department 35 -10- LSB 5135XC (2) 88 da/jh 10/ 12

S.F. _____ of agriculture (USDA). The bill allows a person who has a 1 secured interest attached to farm products to complete and file 2 a document referred to as an effective financing statement 3 or a statement amending, continuing, or terminating the 4 effective financing statement, with the secretary of state 5 (secretary). The secretary must compile information contained 6 in the effective financing statements into a master list 7 organized according to farm products which the secretary must 8 regularly distribute to buyers of farm products registered with 9 the secretary. The secretary may also respond to verbal or 10 written inquiries by buyers including unregistered buyers and 11 deliver a written confirmation to inquiring buyers regarding 12 whether a farm product is subject to a security interest. If 13 a buyer registers with the secretary prior to the purchase 14 of farm products, the registered buyer takes subject to the 15 security interest only if the secured party has filed an 16 effective financing statement that covers the farm products 17 being sold, unless the registered buyer secures a release of 18 the security interest. If a buyer fails to register with the 19 secretary, the buyer takes subject to the security interest 20 only if the secured party has filed an effective financing 21 statement that covers the farm products, and the buyer could 22 have discovered the existence of the effective financing 23 statement by conducting an inquiry and receiving a response and 24 confirmation. The bill authorizes the secretary to establish 25 fees for secured parties filing effective financing statements 26 and buyers registering with the secretary. The secretary 27 must adopt rules as necessary to implement and administer the 28 provisions of the system. The system becomes effective 90 days 29 after the publication date of the Iowa administrative bulletin 30 that includes a statement by the secretary verifying that (1) 31 the secretary has adequate funding to implement and administer 32 the centralized filing system and (2) the centralized filing 33 system has been certified by USDA. 34 BACKGROUND. Article 9 of the UCC provides an exception for 35 -11- LSB 5135XC (2) 88 da/jh 11/ 12

S.F. _____ buyers in the ordinary course of business who generally take 1 free of a security interest created by the seller even in cases 2 in which the security interest has been perfected and the buyer 3 is aware of its existence (Code section 554.9320). However, 4 notwithstanding this exception, a buyer who purchases a farm 5 product from a person engaged in farming operations may not 6 take free of a security interest. The federal Food Security 7 Act of 1985, in relevant part (7 U.S.C. §1631), preempts the 8 state’s article 9 requirements by providing that a buyer in 9 the ordinary course of business, a commission merchant, or a 10 selling agent (all classified under the term “buyer”) may buy 11 farm products without being subject to a security interest 12 created by the seller but only if the buyer does not have 13 actual or constructive notice of that security interest. The 14 federal law allows states to elect between two notification 15 options: (1) Iowa’s current law requiring the secured party to 16 deliver direct notice to potential buyers of a secured party’s 17 interest in the farm products within one year prior to sale, 18 or (2) the system described in the bill. In either case, the 19 federal law does not supersede article 9 requirements that 20 establish priorities among creditors. 21 -12- LSB 5135XC (2) 88 da/jh 12/ 12