Opinion ID: 476727
Heading Depth: 2
Heading Rank: 1

Heading: The Farm Products Exception

Text: 8 The Bank claims that the above provision does not protect Pillsbury, because Pillsbury bought farm products from a person engaged in farming operations. The trial court found that Pillsbury did not purchase farm products. We agree. In the similar case of United States v. Hext, 444 F.2d 804 (5th Cir.1971), the FHA loaned money to Hext, who in turn granted a chattel mortgage on his cotton crop to the FHA. Hext also owned a cotton gin and sold his cotton to the gin, which in turn sold the cotton to others. The court held that once the goods were sold to the cotton gin they became inventory of an entity not engaged in farming operations and thus lost their characteristic as farm products. 2 See id. at 813-14 & n. 30; cf. United States v. Progressive Farmers Marketing Agency, 788 F.2d 1327, 1329-30 (8th Cir.1986) (interpreting identical Iowa U.C.C. provisions in context of hogs, which this court found became inventory in hands of marketing agent for debtors). Following Hext and our recent decision in Progressive Farmers, we think the farm products grown here were converted to inventory when they were sold to the elevator and intermingled with other grain. Inventory is defined by the U.C.C. as goods held for sale or lease. See U.C.C. Sec. 9-109(4) (N.D. Cent. Code Sec. 41-09-09(4) (1983)). We think it is clear that the Bank knew it was financing goods that could become inventory subject to purchase by innocent buyers in the ordinary course of business. See 2 G. Gilmore, Security Interests in Personal Property Sec. 26.8, at 699-700 (1965). 9 As stated in an official comment to U.C.C. Sec. 9-109: 10 Goods are farm products only if they are in the possession of a debtor engaged in farming operations. 11