The rule provides greater direction to the industry as to how growers and other principals that use selling agents may preserve their PACA trust rights. Recent court decisions have invalidated the trust claims of unpaid growers against their selling agent because the growers did not file a trust notice directly with the agent. This new rule clarifies that it is the grower’s responsibility to preserve its trust benefits with its selling agent.
Licensees may preserve their PACA trust rights by giving written notification to buyers on an invoice. A licensee using this method must have the following wording, exactly as shown, on the face of the invoice:
“The perishable agricultural commodities listed on this invoice are sold subject to the statutory trust authorized by section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7 U.S.C. 499e(c)). The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.”
Sellers not licensed under PACA or licensees that do not want to include the statutory wording on their invoices may use another method, providing a written notice to the buyer. The written notice must include the following: (a) a statement that it is a “notice of intent to preserve trust benefits”; (b) the names and addresses of the seller, commission merchant, or agent, and the debtor; (c) the date of the transaction; (d) the commodity; (e) the invoice price; (f) payment terms; and (g) the amount past due and unpaid.
Next, ensure the notification is given within 30 days from the day payment was due, or from receiving notification that a timely submitted payment was dishonored. To qualify for trust protection, the terms for payment cannot exceed 30 days from the date of acceptance of the product.
Payment terms other than PACA prompt payment terms (usually 10 days) must be agreed upon by the parties to the transaction in writing before entering into the transaction.
Preserving Trust Rights & Getting Paid
There are two primary ways a seller can pursue payment after properly preserving its trust rights: by filing an action in a U.S. district court or by asserting trust rights within a bankruptcy.
A seller can file a trust action in a U.S. district court seeking to enforce payment under the PACA trust. It is common for a trust enforcement action to seek a temporary restraining order, freezing the bank accounts of a buyer until the trust creditor is paid. Many produce sellers have found this to be a very effective tool for recovering payment for produce.
