Selling Grain? Know Your
Rights and Your Responsibilities
EC-1194 (Revised), August 2004
Sue Richter, Licensing Division, North
Dakota Public Service Commission
Andrew Swenson, Farm and Family Resource
Management
George Flaskerud, Extension Crops Economist
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No Grain License -- No Bond Protection
Bond coverage does not exist if a buyer is not licensed.
If grain is sold to an unlicensed buyer and if the buyer does not pay for
the grain, there is no bond coverage available to help pay the seller. Court
action may be a farmer's only recourse if an unlicensed buyer fails to pay for
grain. Therefore, farmers are strongly encouraged to check to ensure that
the buyer is licensed. Warehouses and grain buyers must be licensed and bonded.
Unlicensed buyers are operating illegally.
In North Dakota, bond requirements are based on the physical
size of an elevator or on the amount of grain that a grain buyer handles. Even
if the buyer is licensed and bonded, there is no guarantee that farmers will
be fully reimbursed if a buyer becomes insolvent. If the buyer does not
have enough grain and bond assets available to satisfy all valid grain claims,
available funds are distributed on a prorated basis.
Farmers must also be aware that bond coverage may
not be available if grain is sold to a company that is located outside the state.
If grain is sold to out-of-state entities, the laws of the state in which the
buyer is located may govern the transaction. Farmers may find that they have
far less protection in those states than they do if the grain was sold to a
company that is licensed in North Dakota.
To find out if a warehouse or grain buyer is licensed
in North Dakota, visit the Public Service Commission Web site at www.psc.state.nd.us
or call (701) 328-4097.
Credit-Sale Contracts And Indemnity Fund
Delayed price and deferred payment contracts are examples
of credit-sale contracts. In many cases, credit-sale contracts do not have
bond protection. However, the new North Dakota Credit-Sale Contract Indemnity
Fund now can provide some protection for unpaid credit-sale contracts.
State law defines credit-sale contracts as written
grain sale contracts that provide that the sale price may be paid more than
30 days after the delivery or release of the grain for sale. Title to the
grain will pass from the farmer to the buyer when a credit-sale contract is
signed, unless the farmer has signed a contract providing for the title to the
grain to pass to the buyer at the time of delivery.
Farmers should be aware that credit-sale contracts are
not protected by the buyer's bond unless the buyer has secured independent bond
coverage. If the buyer has secured independent bond coverage, the amount of
bond available should be identified in the contract disclaimer. If no credit-sale
contract bond coverage is available, a disclaimer must be printed in bold type
immediately above the signature block on the contract with the following or
similar language:
THIS CONTRACT IS NOT PROTECTED BY BOND
COVERAGE IN THE EVENT OF THE BUYER'S INSOLVENCY.
Although there may not be bond protection afforded to
those entering into credit-sale contracts, an indemnity fund was created by
the 2003 Legislature that provides protection for unpaid credit-sale contracts
executed after Aug. 1, 2003 in grain elevator or grain buyer insolvencies. Coverage
is 80% of each patron's unpaid credit-sale contracts with the insolvent buyer,
up to a maximum payout of $280,000. However, coverage may be prorated if the
indemnity fund balance is insufficient to cover all claims. Indemnity fund
protection is not available on credit-sale contracts made with buyers who are
not licensed.
Farmers -- Credit-Sale Contracts Must Be Signed
State law requires that scale tickets be issued for
every load of grain received and that all scale tickets be converted into
cash, noncredit-sale contracts, credit-sale contracts or warehouse receipts
within 30 days after the grain is delivered to the warehouse. State law also
requires every grain buyer, upon receiving grain, to issue a scale ticket or
comparable receipt and shall pay the farmer within 30 days of receipt of the
grain.
Farmers who make a decision to sell grain and take payment
more than 30 days after the delivery or release of the grain for sale must enter
into a credit-sale contract with the grain warehouse where the grain is delivered
or with the grain buyer who received the grain. A credit-sale contract must
be signed to be valid and enforceable. If credit-sale contracts are not
signed within the required time, grain warehouses and grain buyers are at risk
of having a complaint filed against them.
Farmers are encouraged to work with their grain warehouses
and grain buyers to get all credit-sale contracts signed within the time permitted
by state law.
Storage Rates And Handling Fees
State law does not prescribe grain elevator storage rates
and handling fees. Each state licensed grain warehouse sets its own storage
rates and redelivery fees (i.e. "in" and "out" charges).
Licensees cannot, however, unjustly discriminate among
patrons. State licensed grain warehouses must file their proposed rate schedule
with the Public Service Commission; it must also be posted at the warehouse.
The rates may be revised upon filing with the PSC.
Storage rates must be stated on warehouse receipts.
If a warehouseman changes his rates, the rates that were in effect when
a warehouse receipt was issued are the rates that apply to that storage contract.
Warehouse receipts on beans expire on April 30 of each year; other grain receipts
expire on June 30. If expired receipts are reissued, the storage rate in effect
at the time is the rate that will apply to the renewed receipt.
Farmers should not confuse storage rates with credit-sale
contract service or handling charges (delayed price and deferred payment-type
transactions). These fees are not regulated and are governed by the terms of
the contract that is entered into by the buyer and the seller.
Grading Disputes -- Don't Wait Or You'll Be Too Late
State law does not regulate elevator purchase prices,
premiums, or discounts. State law does provide, however, that warehousemen may
not unjustly discriminate among patrons.
If a farmer does not agree with an elevator's test results
he has the right to ask that an independent test be performed on his grain.
He must, however, ask for the test when the grain is delivered.
To initiate the process, the farmer must ask for the
independent test. The farmer and the warehouseman must then draw a mutually
agreeable sample of the load. This sample must be sealed in a container
and sent to a federally licensed inspection service or to some other
mutually agreed to third party for testing.
The buyer and the seller are both obligated to accept
the results of the independent test. The farmer is responsible for the cost
of the tests.
State law requires that warehousemen and grain buyers
post a notice concerning the law's provisions concerning the resolution of grain
grading disputes. To obtain a copy of the notice, visit the PSC's Web site at
www.psc.state.nd.us or call (701) 328-4097.
North Dakota
Public Service Commission
600 E. Boulevard Ave. -Dept. 408
Bismarck, ND 58505-0480
Web Site: www.psc.state.nd.us
E-Mail: skr@oracle.psc.state.nd.us
Phone: 701.328.4097
For more information on this and other topics, see: www.ag.ndsu.nodak.edu
EC-1194 (Revised), August 2004
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