A statutory exception in secured transactions law that prevents a buyer in ordinary course of business from taking farm products free of a security interest created by the seller even if the security interest is perfected.
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Cases
Statutes
Uniform Acts
How its tested
Common Examples
6
Farm Products Purchase Subject to Lien
Finn Fletcher buys corn from a farming operation that had granted a perfected security interest to Flagship Logistics. Finn pays market price in the ordinary course and has no actual knowledge of the lien. The exception for farm products prevents Finn from taking the corn free of the security interest.
Cattle Buyer Remains Subject to Lien
Gina Grant purchases feeder cattle from a ranch that had given a perfected security interest to Prairie Bank. Gina buys in ordinary course without knowledge of the lien. The farm-products exception keeps the bank's security interest attached to the cattle.
Soybean Elevator Purchase Encumbered
Harold Hayes buys soybeans from a cooperative that had granted a perfected security interest to Central Grain Finance. Hayes pays cash in ordinary course and lacks actual knowledge. The exception prevents Hayes from obtaining the beans free of the security interest.
Irene Ingram acquires market hogs from a farrowing operation financed by Farm Credit Services under a perfected security interest. Ingram acts in ordinary course without notice. The farm-products exception leaves the security interest enforceable against the hogs.
Wheat Harvest Buyer Takes Subject
Jack Jensen purchases wheat directly from a grower whose crop was encumbered by a perfected security interest in favor of Valley Ag Credit. Jensen pays market price in ordinary course. The exception ensures the credit union's lien survives the sale.
Dairy Herd Buyer Keeps Lien
Karen Kline buys milking cows from a dairy that had pledged them under a perfected security interest to Dairy State Bank. Kline buys in ordinary course without knowledge. The farm-products exception prevents Kline from taking the herd free of the lien.
2 common questions
Students Frequently Ask...
Does a buyer of farm products ever take free of a prior security interest under the ordinary course buyer rule?
No. The statute expressly carves farm products out of the buyer in ordinary course protection even when the buyer acts in good faith and without knowledge of the security interest.
Supporting sources
Why does the farm products exception exist in UCC 9-320(a)?
The exception protects agricultural lenders who routinely finance crops and livestock by ensuring their security interests remain enforceable against downstream buyers rather than being cut off by ordinary course sales.
Supporting sources
438 U.S. 104, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978)
…In holding that direct overflights above the claimant’s land, that destroyed the present use of the land as a chicken farm, constituted a “taking” Causby emphasized that Government had not “merely destroyed property [but was] using a part of it for the flight of its planes.” Id. , at 262-263, n. 7. See also…