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PACA’ s dispute resolution and mediation services are important tools that produce businesses can utilize to resolve disputes that sometimes occur between trading partners. But what can a produce business do when it is owed money by a customer who has suddenly gone out of business or filed for bankruptcy protection?
When a supplier sells produce to a buyer, the supplier automatically becomes eligible to participate in the trust. The PACA trust provisions require that dealers maintain a statutory trust on fruits and vegetables received but not yet paid for. In the case of a business failure, the debtor’s trust assets are not available for general distribution to other creditors until all valid trust claims have been satisfied. Because of this, suppliers that file for trust protection have a far greater chance of recovering money owed them when a buyer goes out of business.
How to Preserve Trust Rights
Two methods are available to PACA licensees for preserving trust rights:
By a separate mailing of the trust notice to the buyer, or
By giving notice to the debtor on the invoice. If the licensee uses this method, the following wording, exactly as shown, must appear 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.
Unlicensed sellers who want to preserve their trust rights must provide a separate trust notice to the buyer or agent.
A trust notice must be in writing, must include the statement that it is a notice of intent to preserve trust benefits and must include information that establishes for each shipment:
- The names and addresses of the trust beneficiary, seller-supplier, commission merchant, or agent and the debtor, as applicable;
- The date of the transaction, commodity, invoice price, and terms of payment;
- The date of receipt of notice that a payment instrument has been dishonored (if appropriate);
- The amount past due and unpaid.
Any licensee, or person subject to license, who has a fiduciary duty to collect funds resulting from the sale or consignment of produce, and remit such funds to its principal (i.e. a growers' agent or a collect and remit broker), also has the duty to preserve its principal’s rights to trust benefits.
Time Restrictions on Filing
Notification, either on the invoice or by separate mailing of the trust notice, must be given within 30 days from the date payment was due, or from receiving notification that a timely submitted payment was dishonored.
Payment Terms
Terms for payment cannot exceed 30 days from the date of acceptance to qualify for trust protection. Payment terms other than the PACA prompt payment terms (usually 10 days) must be agreed upon by the parties, in writing, before entering into the transaction.
Trust Assets include:
- Perishable agricultural commodities received in all transactions;
- All inventories of food or other products derived from such perishable agricultural commodities; and
- All receivables or proceeds from the sale of such commodities and food or products derived therefrom.
Enforcing the Trust
The District Courts of the United States have jurisdiction to entertain (1) actions by trust beneficiaries to enforce payment from the trust, and (2) actions by the Secretary to prevent and restrain dissipation of the trust. ("Dissipation" means any act or failure to act that could result in the diversion of trust assets or that could prejudice or impair the ability of unpaid suppliers, sellers, or agents to recover money owed in connection with produce transactions.)
Through such filings, creditors have been successful in recovering dissipated trust assets from banks and other lenders and even from corporate principals.
If you have any questions regarding this course material, please direct them to Karla Whalen, Head of the PACA Branch's Trade Practices Section, Washington DC at 202-720-6873, or via email at josephine.jenkins@ams.usda.gov.
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