Paul Horton: PACA Trust Rights

The PACA trust protections will automatically apply in a wide variety of circumstances. However, it is possible for a seller to inadvertently waive its rights to the PACA protections by taking certain actions. The following are some of the ways in which a seller may inadvertently waive its rights to the PACA protections.

Agreeing to Payment Terms in Excess of 30 Days Will Result in Automatic Loss of PACA Protections:

If a shipper agrees to any payment terms in writing that are more than 30 days after the receiver accepts the load, the shipper has automatically lost the special protections of the PACA trust. The legend at the bottom of the invoice will not protect the shipper if the shipper agrees in writing to payment terms in excess of 30 days. That is the law under PACA even if the contract states that it is “subject to PACA.” Agree in writing to payment in more than 30 days and you lose PACA trust protections. This is why you need Ascent Law Firm on your side.

The Pay Period in the Contract Must Exactly Match the Pay Period in the Order Confirmation and the invoice:

Be even more careful! If you do have a written contract with a produce receiver or even an order confirmation with a receiver, not only must the pay period be no more than 30 days after acceptance of the load, but the pay period on your invoice must match the pay period in the contract or order confirmation. Some receivers attempt to trick shippers into losing their PACA trust rights by sending order confirmations with unusual pay periods in the hope that the shipper will place a different pay period on the invoice that is issued to the receiver. Then when the receiver becomes insolvent, the receiver claims that because the invoice has one pay period and the order confirmation or written contract has a different pay period that the shipper has waived its PACA trust rights and in some cases they have been successful.

The Safest Payment Practice to Ensure that PACA Trust Protections are Not Waived:

In order to avoid any possible waiver of PACA trust rights by our produce shipper clients, we recommend that they always place the words “PACA Terms” as the payment period on their invoices and that the use this same term in any produce contract that they sign. If the shipper follows this practice it is far less likely that they will waive their PACA trust rights. If your invoices are preprinted, be sure that you manually change the payment period on the invoice to correspond to the period contained in the written agreement. Of course, keep in mind that a payment period of more than 30 days after acceptance will result in loss of your PACA trust rights.

Collecting Attorneys Fees Under PACA

Frequently our clients tell us that they want to collect their costs and attorney’s fees of filing a collection suit when they need to collect from their receiver. Generally, state laws do not allow a seller to collect attorney’s fees unless the buyer and seller have signed a contract which provides for attorney’s fees to be paid in the event that a collection suit is necessary. The principal exceptions to this general rule are Arkansas, Idaho, Alaska, Oklahoma, Texas and Arizona.

However, in many cases PACA licensees who use the PACA trust legend have been successful in collecting attorney’s fees when they include these additional sentences as part of their PACA trust legend on their invoices:

“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 499(e)(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. NOTICE: Past due invoices shall accrue annual interest at the rate of 12% or at the maximum legal rate, whichever is lower. The receiver agrees that the shipper shall be entitled to collect reasonable attorney’s fees and expenses as part of an action to collect on this invoice. Actual attorney’s fees incurred in bringing any action to collect on this invoice and/or enforcing any judgment granted and interest shall be considered as additional sums owed in connection with this transaction. “

Note that only US shippers who hold a PACA license can preserve a chance to collect attorney’s fees by using this legend. Non-US shippers and US shippers that do not have a PACA license CANNOT preserve a right to collect attorney’s fees by using this legend.