§ 41-09-40 — (9-320) Buyer of goods

1. Except as otherwise provided in subsection 5, a buyer in ordinary course of business,
other than a person buying farm products from a person engaged in farming
operations, takes free of a security interest created by the buyer's seller, even if the
security interest is perfected and the buyer knows of its existence. A crop or livestock
buyer is a buyer in the ordinary course of business as to security interests and
agricultural liens if the buyer qualifies under subsection 9. As used in this section, a
crop or livestock buyer is a person who buys crops or livestock from, or who sells
crops or livestock on a fee or commission for, a person engaged in farming operations.

2. Except as otherwise provided in subsection 5, a buyer of goods from a person who
used or bought the goods for use primarily for personal, family, or household purposes
takes free of a security interest, even if perfected, if the buyer buys:
a. Without knowledge of the security interest;
b. For value;
c. Primarily for the buyer's personal, family, or household purposes; and
d. Before the filing of a financing statement covering the goods.
3. To the extent that it affects the priority of a security interest over a buyer of goods
under subsection 2, the period of effectiveness of a filing made in the jurisdiction in
which the seller is located is governed by subsections 1 and 2 of section 41-09-36.
4. A buyer in ordinary course of business buying oil, gas, or other minerals at the
wellhead or minehead or after extraction takes free of an interest arising out of an
encumbrance.
5. Subsections 1 and 2 do not affect a security interest in goods in the possession of the
secured party under section 41-09-33.
6. If a secured party who has perfected a security interest in crops or livestock, or if a
lienholder who has created a lien by statute or otherwise, which includes agricultural
liens, intends to impose liability for the security interest or lien against a crop or
livestock buyer, the name of the secured party or lienholder must appear on the most
current list distributed by the secretary of state pursuant to section 54-09-10. In order
to appear on the list, secured parties or lienholders must file with the secretary of state
or in the office of the recorder in any county in this state a form prescribed by the
secretary of state which contains the information prescribed by the secretary of state
under section 41-09-92 or contained on a form prescribed by the secretary of state
under section 35-17-04, 35-30-02, or 35-31-02.
7. When a crop or livestock buyer issues a check or draft to a person engaged in farming
operations in payment for crops or livestock in order to take free of security interests or
liens against such crops or livestock, the crop or livestock buyer must issue the check
or draft for payment jointly to the person engaged in farming operations and those
secured parties or lienholders who have a security interest or lien in the crops or
livestock sold and whose names appear on the most current list or lists distributed by
the secretary of state at the time the check or draft is issued. A claim for relief may not
be commenced by a secured party or lienholder against a crop or livestock buyer for a
loss incurred as a result of issuing a check or draft after January 1, 1986, which does
not include the name of a secured party or lienholder under this section more than
eighteen months after the date of the check or draft unless within the eighteen-month
period the secured party or lienholder sends a notice as provided under this section,
but in no event can the action be commenced more than five years after the date of
the check or draft. The notice must:
a. Be sent by certified mail to, or personally served upon, the crop or livestock
buyer;
b. Name the person engaged in farming operations and the date of the check or
draft that gives rise to the claim;
c. State the intention of the secured party or lienholder to make a claim;
d. State the amount the secured party or lienholder is claiming;
e. Give a description of and the amount of crops or livestock upon which the claim is
based; and
f. State that the secured party or lienholder has commenced an action seeking
judgment against the person engaged in farming operations or such person has
filed or has been placed in bankruptcy or receivership proceedings under chapter
32-10.
8. A complaint by a secured party or lienholder may not be filed or served against a crop
or livestock buyer for collection of any loss sustained by the secured party or
lienholder through any transaction filed pursuant to subsection 6 until:
a. A judgment has been obtained and a good-faith effort made to collect that
judgment against the person engaged in farming operations, or that proceedings

against the person engaged in farming operations were stayed by federal
bankruptcy proceedings, or that receivership proceedings have been commenced
under chapter 32-10;
b. Within eighteen months following the date of the check or draft, the notice
required to be sent pursuant to subsection 7 was served upon the crop or
livestock buyer and reciting or incorporating by reference all the information
contained in that notice; and
c. A list is made of any other collateral taken by the secured party or lienholder as
security on the same debt from the person engaged in farming operations,
including a statement of value, status, and plans for application of such collateral
to the indebtedness of the person engaged in farming operations.
9. A crop or livestock buyer takes free of any security interest created by, or any lien
against crops or livestock of, the person engaged in farming operations if:
a. The crop or livestock buyer has complied with the requirements of subsection 7;
b. Evidence of security interests or liens does not appear on the most current list
prepared and distributed by the secretary of state pursuant to sections 54-09-09
and 54-09-10; or
c. The name of the person represented to be the seller of the crops or livestock
does not appear on the most current list prepared and distributed pursuant to
sections 54-09-09 and 54-09-10.