AN ACT Relating to security interests in farm crops; amending RCW 62A.9-307, 62A.9-402, and 62A.9-407; adding a new chapter to Title 19 RCW; prescribing penalties; and making an appropriation.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The availability of credit is vital for agriculture. For that reason, the legislature has traditionally promoted the availability of agricultural credit. The legislature finds that lenders lack a uniformly effective means of providing notice of a lender's security interest in farm products to purchasers of the products. The legislature further finds that purchasers lack any practical method for discovering the existence of security interests in farm products.

Accordingly, it is the intent of the legislature to promote the development of a central filing system as provided in 7 U.S.C. Sec. 1631(c)(11) and to encourage private businesses to provide for expeditious discovery of liens and security interests in farm products.

NEW SECTION. Sec. 2. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Department" means the department of licensing of the state of Washington.

(2) "Director" means the director of the department or a duly authorized representative.

(3) "Person" means a natural person, individual, firm, partnership, corporation, company, society, association, cooperative, or any organized group of persons whether incorporated or not, and every officer, agent, or employee thereof. This term shall import either the singular or the plural as the case may be.

(4) "Buyer of farm products" 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 or a person who acts as a commission merchant or selling agent dealing in products purchased from a person engaged in farming operations who is in the business of selling farm products.

(5) "Central filing system" means a system for filing effective financing statements or notice of such financing statements on a state-wide basis and which has been certified by the secretary of the United States department of agriculture.

(6) "Central filing system operator" means the department of licensing or a person licensed under this chapter to operate a central filing system for any or all farm products.

(7) "Effective financing statement" means a financing statement for farm products described in RCW 62A.9-402(9) and shall include amendments as set forth under RCW 62A.9-402(10). Effective financing statements filed pursuant to this chapter are not subject to the effective financing statement requirements under chapter 62A.9 RCW, except as provided in RCW 62A.9-409(1) and this chapter.

(8) "Subscriber" means a person utilizing the services of a central filing system operator.

(9) "Registrant" means a subscriber indicating an interest in receiving information in writing by farm product category according to the method described in section 7 (6)(b) of this act.

(10) "Farm product" means any product defined as such for purposes of this chapter by the director.

NEW SECTION. Sec. 3. The director shall administer and enforce the provisions of this chapter and the necessary rules. The director shall adopt rules:

(1) Governing the licensing of central filing system operators. Such rules shall include the requirements enumerated in section 7 (1) through (7) of this act;

(2) Providing that licensees keep records as required;

(3) Defining time periods within which registrants will receive notice of information for which they have registered an interest, if more frequently than provided for in section 7 (6)(b) of this act;

(4) Defining the categories of farm products for central filing; and

(5) Defining provisions in agreements between central filing system operators and holders of security interests regarding the timeliness of notice of termination of effective financing statements filed pursuant to this chapter. Operators shall make no charge for filing terminations. If the affected secured party fails to file such a termination statement as required by this subsection within ten days after proper demand therefor, the secured party shall be liable to the debtor for one hundred dollars, and in addition any loss caused to the debtor by such failure.

NEW SECTION. Sec. 4. All rules adopted under the provisions of this chapter shall be subject to the provisions of chapter 34.05 RCW as enacted or as hereafter amended, concerning the adoption of rules. The department shall issue regulations requiring notice of statutory crop liens with the master lists distributed to registrants.

NEW SECTION. Sec. 5. It is unlawful for any person to engage in the business of filing effective financing statements or providing information about effective financing statements without a central filing system operator license. Applications shall be made on or before the first day of each January and shall be accompanied by a fee of five thousand dollars.

NEW SECTION. Sec. 6. Application for a central filing system operator license provided for in section 5 of this act shall be on a form prescribed by the director and shall include the following:

(1) The full name of the person applying for the license;

(2) If the applicant is an individual, receiver, trustee, firm, partnership, association, corporation, cooperative or any other organized group of persons whether incorporated or not, the full name of each member of the firm or partnership, or the names of the officers of the association, corporation, cooperative, or group;

(3) The principal business address of the applicant in the state and elsewhere;

(4) The name of the person whose domicile is in the state and who is authorized to receive and accept services of summons and legal notice of all kinds for the applicant;

(5) The license being applied for; and

(6) Any other necessary information prescribed by the director.

NEW SECTION. Sec. 7. The director shall not issue a central filing system operator license until the director has obtained certification by the secretary of the United States department of agriculture and the applicant or the person managing the business has demonstrated the capacity to comply with the following requirements:

(1) Receive effective financing statements from subscribers who are secured parties in farm crops;

(2) Submit each effective financing statement received from subscribers for filing with the department of licensing within one full business day and furnish each subscriber with proof of such filing;

(3) Maintain a list of registrants by farm product category interest;

(4) Provide service to all persons wishing to be registrants for each farm product category for which the applicant shall have registrants;

(5) Operate an automated electronic data system which integrates and makes available by remote electronic access information filed on effective financing statements maintained under RCW 62A.9-407(3) by the department of licensing. This information shall be provided on each farm product category for which the applicant or the person managing the business has registrants;

(6) Provide information maintained under RCW 62A.9-407(3) by the department of licensing to be organized and distributed to registrants according to the following method:

(a) The information shall be compiled into a master list organized according to categories of farm products for which there are registrants. The list shall be organized within each farm product category in alphabetical order according to the last name of the debtor or, in the case of debtors doing business other than as individuals, the first word in the name of such debtor. The list shall be further organized according to and contain information required by federal law and regulation; and

(b) The complete master list for each farm product category for which there are registrants shall be distributed for each farm products category at least quarterly to each buyer registered under subsection (3) of this section. Buyers shall receive either complete lists or cumulative supplements, which supplements shall be issued not less frequently than twice monthly, of financing statements for farm products filed subsequent to the last date of filing for effective financing statements on the last preceding quarterly master list, which the buyer has requested. The buyer shall be deemed to have received the lists and supplements no later than the third calendar day following the date of mailing by the licensed central filing system operator or in the event the mail is not delivered on that day, the first day thereafter on which mail is regularly delivered; and

(7) Provide upon the request of any person not registered under subsection (3) of this section, within twenty-four hours, an oral confirmation of the filing of the form described in RCW 62A.9-402(9) followed by a written confirmation.

NEW SECTION. Sec. 8. (1) Central filing system operators licensed under the provisions of this chapter shall keep records on a form prescribed by the director which shall include the following:

(a) Number of effective financing statements received and filed according to farm product categories, the name of the subscriber, and the time of receipt and filing;

(b) Names and addresses of registrants and type of service requested by each;

(d) Amount of fees collected from subscribers registering as buyers;

(e) Number of modes of disseminating information from the central filing system to subscribers;

(f) Number of units of service in each mode provided to subscribers and dates of service;

(g) Any other reasonable information required by the director.

(2) These records shall be kept for a period of five years from the date of application for a central filing system operator license and the director shall be provided a copy of the records immediately by the licensee upon request or upon cessation of business operations.

NEW SECTION. Sec. 9. (1) Any license provided for in this chapter may be revoked or suspended by the director for cause.

(2) The director may deny, suspend, or revoke a license provided for in this chapter if he determines that an applicant or licensee has committed any of the following acts, each of which is declared to be a violation of this chapter:

(a) Failed to file effective financing statements for subscribers with the department of licensing within one business day of receipt;

(b) Failed to provide subscribers who are registrants information requested in a timely fashion as prescribed by rule under section 7(3) of this act;

(d) Refused or neglected to keep and maintain records required by this chapter, or to make reports when and as required;

(e) Refused or neglected to comply with the provisions of this chapter, the rules adopted, or any lawful order of the director;

(f) Made false or fraudulent records, invoices, or reports;

(g) Used fraud or misrepresentation in making an application for a license or a renewal of a license; or

(h) Any other act or omission in violation of this chapter or regulation of the department.

NEW SECTION. Sec. 10. (1) The director shall not issue a central filing system operator license until the applicant has furnished the director with evidence of financial responsibility consisting of either a surety bond, a liability insurance policy, or certification of either. The director shall only accept a surety bond or liability insurance policy from authorized insurers in this state, unless procured as a surplus line under RCW 48.15.040.

(2) The amount of the surety bond or liability insurance shall not be less than an amount necessary to continue operation of central filing system services operations through the current calendar year in case of business failure. It shall not be less than fifty thousand dollars. The surety bond or liability insurance shall be maintained at not less than these amounts at all times during the licensing period. The director shall be notified ten days before any reduction at the request of the applicant or cancellation of the surety bond or liability insurance by the surety or insurer. The total and aggregate liability of the surety or insurer for all claims is limited to the face of the bond or liability insurance policy. The director may accept a liability insurance policy or surety bond in the proper sum which has a deductible clause in an amount not exceeding twenty thousand dollars. If the applicant has not satisfied the requirement of the deductible amount in any prior legal claim, the deductible clause will not be accepted by the director unless the applicant furnishes the director with a surety bond or liability insurance which satisfies the amount of the deductible as to all claims that may arise in the operation of a central filing system.

(3) The central filing system operator license will, whenever the surety bond or insurance policy of the licensee is reduced below the requirements of subsection (2) of this section, be summarily suspended until such time as the surety bond or insurance policy is restored.

NEW SECTION. Sec. 11. (1) Any person suffering loss or damage resulting from the operation of a central filing system must file with the director a verified report of loss, setting forth, so far as is known, the following:

(a) The name and address of the claimant;

(b) The type and kind of loss or damage;

(d) The name of the person making the report.

(2) The report must be filed within sixty days from the time that the loss or damage becomes known to the claimant. The failure to file a report shall not be considered a bar to the prosecution of any criminal or civil action. Failure to file such a report shall not be a violation of this chapter.

NEW SECTION. Sec. 12. The central filing system program fund is created in the custody of the state treasurer. All receipts from the fees collected by the director under this chapter and RCW 62A.9-409(1) shall be deposited into the fund. Expenditures from the fund may be used only for the purposes of this act. Only the director of licensing or the director's designee may authorize expenditures from the fund. The fund is subject to allotment procedures under chapter 43.88 RCW, but no appropriation is required for expenditures.

NEW SECTION. Sec. 13. The director is authorized to cooperate with and enter into agreements with any other agency of the state, the United States, and any other state or agency for the purpose of carrying out the provisions of this chapter and securing uniformity of regulations.

NEW SECTION. Sec. 14. Every person who fails to comply with this chapter or the rules adopted under it may be subjected to a civil penalty, as determined by the director, in an amount of not more than five thousand dollars for every violation. Each and every violation shall be a separate and distinct offense. Every person who, through an act of commission or omission, procures, aids, or abets in the violation shall be considered to have violated this chapter and may be subject to the civil penalty.

NEW SECTION. Sec. 15. The director may bring an action to enjoin the violation or threatened violation of any provision of this chapter or any rule made under this chapter in the superior court of the county in which the violation occurs or is about to occur.

NEW SECTION. Sec. 16. No suit or action shall ever be commenced or prosecuted against the director or the state of Washington by reason of any act done or omitted to be done by any licensed central filing system operator in the administration of the duties and responsibilities of the operator.

Sec. 17. Section 9-307, chapter 157, Laws of 1965 ex. sess. as last amended by section 15, chapter 393, Laws of 1987 and RCW 62A.9-307 are each amended to read as follows:

(1) A buyer in ordinary course of business (subsection (9) of RCW 62A.1-201) other than a person buying farm products from a person engaged in farming operations takes free of a security interest created by his seller even though the security interest is perfected and even though the buyer knows of its existence.

(2) A buyer who in the ordinary course of business buys farm products from a person engaged in farming operations buys and takes free of a security interest created by his or her seller, and a commission merchant or selling agent who in the ordinary course of business sells farm products for a person engaged in farming operations buys, takes, and sells free of a security interest created by his or her seller, even though the security interest is perfected and the buyer, commission merchant, or selling agent knows of the existence of such interest if:

(a) The buyer, commission merchant, or selling agent has registered with a central filing system operator licensed under chapter 19.-- RCW (sections 1 through 16 of this act); and

(i) The secured party has not filed an effective financing statement with the department of licensing through a central filing system operator licensed under chapter 19.-- RCW (sections 1 through 16 of this act); or

(ii) The buyer, commission merchant, or selling agent does not receive from a central filing system operator licensed under chapter 19.-- RCW (sections 1 through 16 of this act) written notice that specifies the seller and farm product; or

(b) The secured party has not filed an effective financing statement through a central filing system operator licensed under chapter 19.-- RCW (sections 1 through 16 of this act) and the buyer, commission merchant, or selling agent has not received, within one year before the sale from the secured party or seller, written notice of the security interest containing:

(i) The name and address of the secured party;

(ii) The name and address of the debtor;

(iii) The social security number of the debtor or, in the case of a debtor doing business other than as an individual, the debtor's federal internal revenue service taxpayer identification number;

(iv) A description by category of the farm products subject to the security interest, including the amount of the products, if applicable;

(v) The crop year;

(vi) The county or counties where the farm products are produced or located and, if less than all of such farm products in a county are claimed, a reasonable description of the real property; and

(vii) Any payment obligations imposed by the secured party as a condition for waiver or release of the security interest.

The notice described in this subsection (b) must be amended in writing within three months and similarly signed and transmitted, to reflect material changes; or

(c) The buyer, commission merchant, or selling agent has obtained a waiver from the secured party by performing any payment obligation or otherwise.

(3) In the case of consumer goods, a buyer takes free of a security interest even though perfected if he buys without knowledge of the security interest, for value and for his own personal, family or household purposes unless prior to the purchase the secured party has filed a financing statement covering such goods.

((~~(3)~~)) (4) A buyer other than a buyer in ordinary course of business (subsection (1) of this section) takes free of a security interest to the extent that it secures future advances made after the secured party acquires knowledge of the purchase, unless made pursuant to a commitment entered into without knowledge of the purchase.

Sec. 18. Section 9-402, chapter 157, Laws of 1965 ex. sess. as last amended by section 2, chapter 251, Laws of 1989 and RCW 62A.9-402 are each amended to read as follows:

(1) Except as provided in subsection (9) of this section, a financing statement is sufficient if it gives the names of the debtor and the secured party, is signed by the debtor, gives an address of the secured party from which information concerning the security interest may be obtained, gives a mailing address of the debtor and contains a statement indicating the types, or describing the items, of collateral. A financing statement may be filed before a security agreement is made or a security interest otherwise attaches. When the financing statement covers timber to be cut or covers minerals or the like (including oil and gas) or accounts subject to subsection (5) of RCW 62A.9-103, or when the financing statement is filed as a fixture filing (RCW 62A.9-313) and the collateral is goods which are or are to become fixtures, the statement must also comply with subsection (5). A copy of the security agreement is sufficient as a financing statement if it contains the above information and is signed by the debtor. A carbon, photographic or other reproduction of a security agreement or a financing statement is sufficient as a financing statement if the security agreement so provides or if the original has been filed in this state.

(2) A financing statement which otherwise complies with subsection (1) is sufficient when it is signed by the secured party instead of the debtor if it is filed to perfect a security interest in

(a) collateral already subject to a security interest in another jurisdiction when it is brought into this state or when the debtor's location is changed to this state. Such a financing statement must state that the collateral was brought into this state or that the debtor's location was changed to this state under such circumstances; or

(b) proceeds under RCW 62A.9-306 if the security interest in the original collateral was perfected. Such a financing statement must describe the original collateral; or

(d) collateral acquired after a change of name, identity or corporate structure of the debtor (subsection (7)).

(3) A form substantially as follows is sufficient to comply with subsection (1):

@b4Name of debtor (or assignor)@w1

Address@w1

Name of secured party (or assignee)@w1

Address@w1

1.!sc ,001!il*,2This financing statement covers the following types (or items) of property:

!sc ,3(Describe) @w1

2.!sc ,001!il*,2!sc ,001!il*,2 (If applicable) The above goods are to become fixtures on*

!sc ,003(Describe Real Estate) @w1

and this financing statement is to be filed for record in the real estate records. (If the debtor does not have an interest of record) The name of a record owner is @w1

!sc ,4*Where appropriate substitute either "The above timber is standing on .......... " or "The above minerals or the like (including oil and gas) or accounts will be financed at the wellhead or minehead of the well or mine located on @w1"

3. (If products of collateral are claimed)

Products of the collateral are also covered @w1

!ix!tu6,14 !tc(use!tl@w1

!tcwhichever!tlSignature!sc ,1of!sc ,1Debtor!sc ,1(or!sc ,1Assignor)

!tcis!tl@w1

!tcapplicable)!tl!il*Signature of Secured Party (or Assignee)

!te

(4) A financing statement may be amended by filing a writing signed by both the debtor and the secured party: PROVIDED, That a secured party may amend a financing statement without the signature of the debtor when the amendment is to change the address or name of the secured party. An amendment does not extend the period of effectiveness of a financing statement. If any amendment adds collateral, it is effective as to the added collateral only from the filing date of the amendment. In this Article, unless the context otherwise requires, the term "financing statement" means the original financing statement and any amendments. The fee for filing an amendment shall be the same as the fee for filing a financing statement.

(5) A financing statement covering timber to be cut or covering minerals or the like (including oil and gas) or accounts subject to subsection (5) of RCW 62A.9-103, or a financing statement filed as a fixture filing (RCW 62A.9-313) where the debtor is not a transmitting utility, must show that it covers this type of collateral, must recite that it is to be filed for record in the real estate records, and the financing statement must contain a description of the real estate sufficient if it were contained in a mortgage of the real estate to give constructive notice of the mortgage under the law of this state. If the debtor does not have an interest of record in the real estate, the financing statement must show the name of a record owner.

(6) A mortgage is effective as a financing statement filed as a fixture filing from the date of its recording if (a) the goods are described in the mortgage by item or type, (b) the goods are or are to become fixtures related to the real estate described in the mortgage, (c) the mortgage complies with the requirements for a financing statement in this section other than a recital that it is to be filed in the real estate records, and (d) the mortgage is duly recorded. No fee with reference to the financing statement is required other than the regular recording and satisfaction fees with respect to the mortgage.

(7) A financing statement sufficiently shows the name of the debtor if it gives the individual, partnership or corporate name of the debtor, whether or not it adds other trade names or the names of partners. Where the debtor so changes his name or in the case of an organization its name, identity or corporate structure that a filed financing statement becomes seriously misleading, the filing is not effective to perfect a security interest in collateral acquired by the debtor more than four months after the change, unless a new appropriate financing statement or an amendment is filed before the expiration of that time. A filed financing statement remains effective with respect to collateral transferred by the debtor even though the secured party knows of or consents to the transfer.

(8) A financing statement substantially complying with the requirements of this section is effective even though it contains minor errors which are not seriously misleading.

(9) A financing statement for farm products is sufficient for purposes of being filed as described in RCW 62A.9-407 (3) and (4) and shall be called an "effective financing statement" if it contains the following information:

(a) The name and address of the debtor;

(b) The debtor's signature;

(d) The social security number of the debtor, or in the case of a debtor doing business other than as an individual, the debtor's federal internal revenue service taxpayer identification number;

(e) A description by category of the farm products subject to the security interest including the amount of such products if applicable; and

(f) A reasonable description of the real estate where the farm products are produced or located. This provision may be satisfied by a designation of the county or counties, and a legal description shall not be required.

(10) A financing statement described in subsection (9) of this section must be amended in writing within three months, and similarly signed and filed, to reflect any material changes.

Sec. 19. Section 9-407, chapter 157, Laws of 1965 ex. sess. as last amended by section 5, chapter 189, Laws of 1987 and RCW 62A.9-407 are each amended to read as follows:

(1) If the person filing any financing statement, termination statement, statement of assignment, or statement of release, furnishes the filing officer a copy thereof, the filing officer shall upon request note upon the copy the file number and date and hour of the filing of the original and deliver or send the copy to such person.

(2) Upon request of any person following payment of the required fees, the department of licensing shall issue its certificate showing whether there is on file with the department of licensing on the date and hour stated therein, any presently effective financing statement naming a particular debtor and any statement of assignment thereof and if there is, giving the date and hour of filing of each such statement and the names and addresses of each secured party therein. Upon request and following payment of the required fees, the department of licensing shall issue its certificate and shall furnish a copy of any filed financing statements or statements of assignment.

(3) The department of licensing shall maintain effective financing statements as described in RCW 62A.9-402 (9) and (10) filed with it by a central filing system operator licensed under chapter 19.-- RCW (sections 1 through 16 of this act). The department of licensing shall record the date and time of such filing. A filing of an effective financing statement is deemed to take effect on the fifth business day subsequent to the recording date, but the same time of day as the recording.

(4) The department of licensing shall make facsimiles of effective financing statements and any amendments, continuations, or notices of termination filed with it available for purchase by licensed central filing system operators within four business days of recording.

NEW SECTION. Sec. 20. (1) Prior to the 1992 legislative session, the director of the department of agriculture, on the advice of the senate committee on agriculture and the house of representatives committee on agriculture and rural development, shall evaluate in accordance with the objectives of this chapter:

(a) Whether the costs associated with the proposed activities of operators licensed under this chapter are reasonable and just; and

(b) Whether the department of licensing can operate a central filing system substantially more efficiently than private operators licensed under this chapter. If so, then the department of licensing shall be authorized to act as a central filing system operator.

The department of licensing shall submit a bid as set forth in subsection (2) of this section.

(2) The department of agriculture shall develop specifications and performance standards for a central filing system which meets the requirements of this chapter and RCW 62A.9-307, 62A.9-402, and 62A.9-407 by October 1, 1990, and obtain bids pursuant to the competitive bid requirements set forth in chapter 43.19 RCW by April 1, 1991.

NEW SECTION. Sec. 21. Sections 1 through 16, 20, and 21 of this act may be known and cited as the Washington central filing system act.

NEW SECTION. Sec. 22. Sections 1 through 16, 20, and 21 of this act shall constitute a new chapter in Title 19 RCW.

NEW SECTION. Sec. 23. The sum of forty-nine thousand five hundred dollars, or as much thereof as may be necessary, is appropriated for the biennium ending June 30, 1991, from the general fund to the department of agriculture for the purposes of developing specifications and obtaining bids for a central filing system.

NEW SECTION. Sec. 24. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.