HOUSE BILL REPORT

ESSB 6501

BYSenate Committee on Agriculture (originally sponsored by Senators Barr, Hansen, Bailey, Newhouse, Gaspard and Bauer)

Creating a central filing system for security interests in farm crops.

House Committe on Judiciary

Majority Report:  Do pass as amended.  (16)

      Signed by Representatives Appelwick, Chair; Crane, Vice Chair; Padden, Ranking Republican Member; Brough, Forner, Hargrove, Inslee, P. King, R. Meyers, Moyer, H. Myers, Schmidt, Scott, D. Sommers, Tate and Wineberry.

House Staff:Regina Jones (786-7191)

Rereferred House Committee on Appropriations

Majority Report:  Do pass as amended by Committee on Judiciary as such amendment is amended by Committee on Appropriations.  (22)

      Signed by Representatives Locke, Chair; H. Sommers, Vice Chair; Silver, Ranking Republican Member; Appelwick, Belcher, Bowman, Brekke, Brough, Dorn, Doty, Ebersole, Ferguson, Hine, Inslee, May, Rust, Sayan, Spanel, Sprenkle, Valle, Wang and Wineberry.

Minority Report:  Do not pass.  (3)

      Signed by Representatives Youngsman, Assistant Ranking Republican Member; McLean and Nealey.

House Staff:      Bill Perry (786-7123)

AS PASSED HOUSE FEBRUARY 28, 1990

BACKGROUND:

Under article 9 of the Washington Uniform Commercial Code, items which are bought in the ordinary course of business are generally taken free of security interests. Prior to 1985, this rule did not apply to farm products; farm products bought in the ordinary course of business were taken subject to existing security interests.

In 1985, federal law preempted Washington law in this area.  Under current federal law, farm products sold in the ordinary course of business are taken subject to security interests only when holders of the security interest give buyers actual written notice of the security interest, or when notice is given through a central filing system certified by the United States Department of Agriculture. Washington does not have a farm products central filing system which has been certified by the United States Department of Agriculture.

SUMMARY:

This act will be known as the Washington Central Filing of Crop Liens Act.

The director of the Department of Licensing must develop and, after receiving certification from the United States Department of Agriculture, implement a central filing system in conformity with the 7 U.S.C. Sec. 1631. The department must promulgate rules and regulations governing the system, including establishing by rule a fee schedule.  The fee for registration of buyers cannot exceed $50.  The department must also include in its master lists a listing of statutory crop liens filed with the department.

The Department of Licensing may appoint an agent or agents to develop, implement and/or maintain the filing system. If the department appoints agents, the director of Licensing and the state of Washington cannot be sued for acts or omissions of those agents.

Article 9 of the Uniform Commercial Code is amended regarding transactions in the ordinary course of business with persons engaged in farming operations.  A buyer of farm products buys free of a security interest created by the seller, and a selling agent buys and sells free of a security interest created by the seller, even though the security interest is perfected and the buyer or selling agent has knowledge of the security interest if: (a) the buyer/selling agent has registered with the central filing system and the secured party has not filed an effective farm products notice statement or the buyer/selling agent does not receive written notice specifying the seller and the farm product; or (b) the secured party has not filed an effective farm products notice statement and the buyer/selling agent has not received written notice of the security interest within one year prior to the sale from the secured party or seller; or (c) the buyer/selling agent has obtained a waiver from the secured party.

Information required in an effective farm products notice statement is specified.  Information in an effective farm products notice statement includes the social security number or the federal internal revenue service taxpayer identification number of the debtor. Effective farm products notice statements must be amended in writing within three months to reflect any material changes.

A secured party must file a termination statement within 10 days after a proper request.  If the secured party fails to do so, the secured party is liable to the debtor for $100 in addition to any loss caused by failing to file the termination statement in a timely manner.

The central filing system program fund is created in the custody of the State Treasurer.  All fees collected by the director of the Department of Licensing shall be deposited into the fund. The fund is subject to allotment, but no appropriation is required for expenditures.

An appropriation of $106,000 is made from the general fund to the Department of Licensing.  The department must reimburse the general fund from the fees collected from the central filing system.  The act becomes effective July 1, 1991. The director of Licensing may immediately take steps to ensure that the act is implemented on its effective date.

Appropriation:    $106,000 to the Department of Licensing.

Fiscal Note:      Available.

Effective Date:July 1, 1991.

House Committee ‑ Testified For:    (Judiciary)(Original Bill) Craig Smith, Washington Food Processors Council;  Senator Scott Barr, Washington State Senate and Bill Fritz, Washington Food Processors Council.  (Proposed Amendment) Dan Hungate, Washington State Bar Association, Corporations/Business/Banking Section - UCC Committee.

(Appropriations)  Trevor Sandison, Bankers Association.

House Committee - Testified Against:      (Judiciary)  Marlyta Deck, Washington Cattlemen's Association and Washington Cattle Feeders Association.

(Appropriations)  No one.

House Committee - Testimony For:    (Judiciary)  The bill has been worked on for three years.  Present policy requiring actual notice of farm products liens inhibits the free flow of credit. Competitive bid process will address concerns about the cost of the filing system to its users.

(Appropriations)  The bill will help ensure an adequate flow of credit to producers of agricultural products.

House Committee - Testimony Against:      (Judiciary)(Testimony for Proposed Striking Amendment) The bill introduces new text into a well established, uniform law.  The use of a non-centralized filing system is untested. There is concern regarding whether such a system would work as well as a centralized system. Private enterprise can be used in a centralized system.

(Judiciary) (Testimony against)  The present rules regarding notice of farm product liens are quite satisfactory.

(Appropriations)  None.

VOTE ON FINAL PASSAGE:

      Yeas 87; Nays 10; Excused 1 - 2/28.

Voting Nay: Representatives Ballard, Beck, Betrozoff, Brooks, Fuhrman, Kirby, May, McLean, Nealey and Youngsman

Excused:    Representative Chandler