The Perishable Agricultural Commodities Act – A Powerful Tool

By: Troy W. Stewart, Partner

The Perishable Agricultural Commodities Act (“PACA”) 7 USC §499a, et seq., is a federal statute which provides certain protections for unpaid suppliers, sellers or agents relating to the purchase or sale of any perishable agricultural commodity. PACA defines the term “perishable agricultural commodity” as “fresh fruit and vegetables of every kind and character”, whether or not frozen or packed in ice, including cherries in brine. PACA requires all brokers and dealers in perishable agricultural commodities to obtain licenses from the Secretary of Agriculture. Brokers and dealers violate PACA if they do not pay promptly and in full for any perishable agricultural commodity in interstate commerce. Generally speaking, PACA establishes a statutory trust over certain assets of commission merchants, dealers or brokers engaged in the purchase or sale of perishable agricultural commodities for the benefit of unpaid suppliers or sellers of such commodities. However, in order for an unpaid supplier, seller or agent to avail itself to the protections and benefits provided by PACA, they are required to provide timely, written notice of their intent to preserve the benefits of the trust established by PACA to the commission merchant, dealer or broker. Without the required, timely written notice of the intent to preserve the benefits and protections provided by PACA, an unpaid supplier or seller can lose the benefits of the statutorily created PACA trust, which includes a priority claim to any PACA trust assets.

The “written notice of intent” requirements of PACA are specifically set forth in 7 USC § 499e(c)(3)(i)-(iii). Pursuant to that statutory section, an unpaid supplier, seller or agent loses the benefits of the trust established by PACA unless they have given “written notice of intent” to preserve the benefits of the trust to the commission merchant, dealer or broker within thirty calendar days: (i) after expiration of the time prescribed by which payment must be made, (ii) after expiration of such other time by which payment must be made as the parties have expressly agreed to in writing before entering into the transaction, or (iii) after the time the supplier, seller or agent has received notice that the payment instrument promptly presented for payment has been dishonored. Id. The required “written notice of intent” must set forth information in sufficient detail to identify the transaction subject to the PACA trust and include: (a) the names of the trust beneficiary, seller-supplier, commission merchant, or agent and the debtor (as applicable), (b) the date of the transaction, commodity, invoice price, and terms of payment (if appropriate), (c) the date of receipt of notice that a payment instrument has been dishonored (if appropriate), and (d) the amount past due and unpaid. 7 CFR §46.46(f)(1).

PACA provides that all perishable agricultural commodities received by a commission merchant, dealer or broker and all transactions, and all inventories of food and other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, shall be held by such commission merchant, dealer or broker “in trust for the benefit of all unpaid suppliers or sellers of such commodities or agents involved in the transaction, until full payment of the sums owing in connection with such transactions has been received.” 7 USC § 499e(c)(2). In addition to providing the “written notice of intent” for purposes of preserving the benefits of the PACA trust as discussed above, an unpaid supplier or seller may also use ordinary and usual billing or invoice statements to provide notice of its intent to preserve the PACA trust. The bill or invoice statement must include a copy of any agreement between the parties to the transaction and the terms of payment must be disclosed on invoices, accountings and other documents relating to the transaction. In addition, the bill or invoice statement must contain the following language “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 USC 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.”

PACA provides a powerful tool for unpaid suppliers, sellers or agents dealing in agricultural commodities. PACA establishes a statutory trust over the assets held by a commission merchant, dealer or broker and gives unpaid suppliers or sellers a priority claim for payment from the trust assets. The only requirement for purposes of availing oneself to the protections and benefits provided by PACA and the trust established by PACA is to obtain the required license and provide the required “written notice of intent” to preserve the benefits of the trust established by PACA to the commission merchant, dealer or broker within thirty calendar days of the pertinent date or by submitting a bill or invoice statement which contains the information and language specifically required by PACA, as noted above. These requirements for purposes of preserving the benefits of the PACA trust are rather easy to comply with, especially if one is aware of the requirements. By complying with the requirements of PACA and otherwise preserving the benefits of the trust created by PACA, an unpaid supplier or seller can put itself in a priority position and is more likely to eventually get paid the amounts it is owed. If an unpaid supplier or seller does not provide the required written notice of its intent to preserve the benefits of the PACA trust or does not otherwise qualify for the benefits and protections provided by PACA, the chances of getting paid the amounts you are owed certainly decrease and your eventual receipt of full payment becomes less likely. There are certainly other requirements and/or provisions of PACA which unpaid suppliers, sellers or agents dealing in perishable agricultural commodities should be aware of that are not addressed in this article. But, by providing the required “written notice of intent” to preserve the benefits of the trust created by PACA, an unpaid supplier, seller or agent can put itself in the best possible position for purposes of ensuring that it does eventually receive the amounts due and owing on account of the perishable agricultural commodities that it sold.

If you would like any additional information regarding PACA, the trust established by PACA or the other requirements and provisions of PACA, please do not hesitate to contact our office.

This article is for informational purposes only and is not legal advice.