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Security Interests in Farm Products Is Good for One Year Under the UCC
Description While most security interests under UCC 9-307 are presumed to be good for five years, under a specific provision inserted by the legislature, security interests in farm products are good for one year, so liability for violating the security interest cannot occur after one year.
Topic Negotiable Instruments and Credit
Key Words Security Interest; Lapse
C A S E   S U M M A R Y
Facts On 4/8/92 the Bank gave the Przybylskis a $250,000 loan secured by their hogs. The same day, the Przybylskis signed a "Consent to Payment of Proceeds from Sale of Livestock" which they forwarded to IBP, a purchaser of their hogs. A representative of IBP signed the Consent form on 5/92. The Consent form provided notice of the Bank's security interest in the hogs and provided that IBP would issue checks payable jointly to the Bank and the Przybylskis whenever it bought hogs. IBP did so until 1995, at which time it began to write checks only to the Przybylskis. The Bank sued IBP for $34,240, the amount of checks on which it was not included. The trial court held that the Consent form created a notice to IBP that was valid only for one year. Since the notice had expired, the Bank had no claim against IBP. The Bank appealed.
Decision Affirmed. A security interest in farm products under UCC 9-307(4) is valid for one year. This is unlike the usual security under 9-307(1), which subjects products to the continuing interest of a secured lender for five years unless otherwise stated. The farm product rule was inserted by the legislature; lenders must follow the specific rules of the UCC. The security interest lapsed one year after IBP signed the Consent form, so IBP is not liable to the Bank.
Citation First Midwest Bank, N.A. v. IBP, Inc., 2000 WL 679929 (Slip Copy, App. Ct., Ill., 2000)

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