Paul Horton: PACA Automatic Protections

PACA is a bit different than some other trade laws because the law has certain provisions that will apply automatically if the parties do not have a special agreement that covers that term. As a PACA Lawyer, you need to know that some of the PACA automatic provisions are:

Claims by receivers that product arrived in bad condition or is otherwise defective must be supported with official inspections – All claims by buyers or receivers that a shipment of produce was defective or damaged generally must be supported by a timely issued inspection certificate issued by an inspector who works for the USDA.

Fixed periods to pay for product received – When product is sold, there are fixed time periods during which a buyer can reject a shipment, based upon obtaining a USDA inspection certificate. After the end of this period, the buyer can no longer reject the shipment, but must instead show that it was damaged.

Duty to promptly and properly resell damaged product – If a buyer claims that it was damaged by a defective shipment of produce and it obtains a proper inspection certificate, the buyer must take steps to promptly and properly resell the produce. The produce must be sold in a manner that takes into account the fact that it is damaged and must be sold quickly to salvage some remaining value. The buyer must generally provide dates of sale, prices and quantities of sale and must account for all expenses that are claimed as damages. Generally unless the load of produce is shown to be completely unsellable, the buyer still must take these steps to limit the damage and will not be able to claim damages against the seller merely because the buyer obtained an inspection certificate.

Proper accountings for consignments – On consignments, the consignee must account for all sales and provide the consignor with a liquidation of sales that includes dates, quantities and prices of sale of all product received. If the consignee dumps more than 5% of any consignment shipment, it must obtain a timely issued USDA inspection certificate to show that the product was unsalable. If the consignee intends to grant a price allowance to a customer, the customer must supply the consignee with a timely issued USDA inspection certificate to support the customer’s claim. If the consignee does not require its customer to supply these documents, then the consignee can be liable to the consignor for the price adjustment that was granted to the customer.

Official governmental inspections are required – Another important part of PACA is the inspection services provided by the USDA or through state government services that work in cooperation with the USDA. Unlike many other products, interstate and international shipments of produce can be inspected by an impartial government inspector, who is authorized to inspect according to set protocols. The USDA and state departments of agriculture have inspection offices located across the United States. The inspector can inspect for many things, condition, quality, weight, count and can inspect against a USDA grade standard The grade standards apply when the parties have agreed that they apply to a shipment of produce for example when the parties agree that a shipment will be US Grade #1 apples.

In those cases in which the two parties have not agreed to a USDA or other grade standard, PACA still requires that the produce be merchantable, a minimum acceptable in the produce trade generally.

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