SD24 - Security Interests in Farm Products

  • Published: 1986
  • Author: General Assembly. Joint Subcommittee
  • Enabling Authority: Senate Joint Resolution 123 (Regular Session, 1985)

Executive Summary:
Pursuant to Senate Joint Resolution No.123 of the 1985 General Assembly, a Joint Subcommittee was established to study Title 8.9 of the Uniform Commercial Code as it relates to security interests in farm products and equipment, and to study the feasibility of requiring the State Corporation Commission to computerize filings of secured transactions relating to farm activities.

The joint subcommittee held meetings on November 26, 1985 and January 7 and January 16 of 1986. The subcommittee noted at its first meeting that it purposely started its study late because of the federal legislation being discussed in Congress and because it wanted to see what would result. During its meetings the subcommittee heard a great deal of testimony and received several pieces of written testimony. The staff and interested parties offered the study group written materials during and in between meetings.

Prior to the subcommittee's first meeting, its staff furnished each member with a copy of an initial staff study pointing out the various issues that the study group should consider and what methods other states were using to address the exemption afforded under § 307 of Part 9 of the Uniform Commercial Code which appears as § 8.9-307 of the Code of Virginia. Appendix 1 of this report contains a portion of the initial staff study submitted to the members of the joint subcommittee.

At its November 26 and January 7 meetings, the joint subcommittee received most of its testimony and made most of its fact finding. The testimony centered around that section in the Uniform Commercial Code, more specifically § 8.9-307 of the Code of Virginia, which affords protection to a buyer in the ordinary course of business. The subcommittee found that that section as it presently appears makes an exception to the general rule for those persons buying farm products from a person engaged in farming operations. Normally, a person buying goods in the ordinary course of business takes those goods free and clear of the security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence. The farm products exception to that general rule does not afford the same protection to a person buying farm products from a person engaged in farming operations. The subcommittee found that the testimony was divided between those representing banking interests and those representing farming interests. Those persons representing banking interests stated that if the law was changed to eliminate the farm products exception, they would like to see a central filing system established in the Commonwealth for the purpose of filing liens on farm products and for the purpose of making the lien information available to potential buyers. Those persons representing farming interests stated that they were in favor of eliminating the exception and the statutory creation of a pre-notification system whereby the banks would notify potential buyers of any existing liens.

At its January 16th meeting, the joint subcommittee heard very little testimony and made public its decision to recommend that the exception to the general rule created in the Uniform Commercial Code be eliminated and that the failure to pay off an existing lien within a period of time after the farmer-seller had sold the farm products would be punishable as a criminal violation. The joint subcommittee also decided that the study should be continued for another year In order that it may more fully study the options of a central filing system and the pre-notification system.

At all three of the subcommittee meetings representatives from the following associations appeared and testified: the Virginia Bankers Association; the Virginia Farm Bureau Federation; the Virginia Agribusiness Council; the State Corporation Commission; the law firm of Mays, Valentine, Davenport and Moore; the Virginia Poultry Federation; the Virginia State Feed Association; Continental Grain Company of Norfolk, Virginia; Perdue, Inc.; the Virginia Livestock Markets Association; Dominion Bank in Harrisonburg; the Virginia-Carolina Peanut Growers' Association; Sovran Bank; the Richmond Farm Bureau Credit Association; and several grain and beef cattle farmers from around the Commonwealth.

Having heard testimony, the subcommittee thoroughly discussed and carefully considered which recommendations to make to the 1986 General Assembly. All of the recommendations were made by unanimous vote by the members of the full joint subcommittee.