Food Security Act Doesn't Apply to Proceeds

Food Security Act Doesn't Apply to Proceeds

The Food Security Act of 1995 is part of a matryoshka of statutes.   In the center is the general rule of 9-320(a) of the UCC, that a buyer in the ordinary course of business takes free of a security interest created by its seller.  The next doll is the Farm Products Exception, which I wrote about here:  except, most notably, in California, the buyer in the ordinary course rule does not apply to a buyer of farm products.  The next doll is the Food Security Act itself:  if you fail to comply with its terms, then the Farm Products Exception does not apply.  Finally, if you do comply, then the Farm Products Exception does apply. 

If that's not entirely clear, don't blame the messenger.

An interesting case out of the U.S. Bankruptcy Court for the Central District of Illinois asked this question:  does the Food Security Act apply to proceeds?  Here are the basic facts of CNH Capital America LLC v. Trainor Grain & Supply Co.:  Both CNH and Trainor had financed crops for farmers named Printz, who are now in bankruptcy.  CNH had the earlier filed financing statement.  Trainor was also the grain elevator which bought the crops.  CNH did not comply with the notice provisions of the Food Security Act.  Trainor had therefore, there was no dispute, purchased the crops free and clear of CNH's lien.  But what about the proceeds?  Trainor simply offset them against its debt and paid nothing to the Printzes.  Would it be able to walk away without paying, despite CNH's earlier filed financing statement?

 

Read the entire article at the Food Liability Law Blog

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