Preserving Trust Rights
Sellers and growers must preserve their trust rights to take advantage of the trust remedy, as explained below.
A seller, who buys or sells 2000 lbs. in any given day must be licensed under PACA. Therefore, a seller can preserve its trust rights by putting the following trust wording on the face of the invoice or other billing documents. Without this “trust wording” on invoices or other shipping and/or billing documents, there is no trust protection.
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.
To increase the chance of collecting attorney fees, costs and interest from a buyer or a grower’s agent, the following wording should also be added on the face of the invoice, or other shipping and/or billing documents.
Interest at (specify rate)/mo. added to unpaid balance. Interest and attorney’s fees and costs necessary to collect payment are sums owing in connection with the transaction.
For a grower to preserve its trust rights, the grower must give a trust notice to its agent. The notice must be in writing and include the following information for each shipment: names and addresses of the grower and the agent; the date of the transaction and terms of payment; and information in sufficient detail to identify the transaction.
Alternatively, a grower can preserve its trust rights by obtaining a PACA license. The license fee is $995 per year. By obtaining a license, a grower can preserve its trust rights by providing its agent with ordinary and usual invoice statements, which contain the PACA trust notice language. The invoice must also state the payment term between the parties, and the amount due from the agent.
However, this is a new PACA regulation, and there are no precedents for how this will work between growers and agents given the wide variety of documents used between growers and growers’ agents. So, the best practice is to consult an attorney who can assist growers in perfecting their trust rights vis-à-vis their agents.
Growers’ agents must be licensed, and PACA requires growers’ agents to preserve trust rights as to its buyers to ultimately protect the grower. Thus, growers’ agents who must be licensed, must put the PACA “trust wording” on their invoices to its buyers, and should also include the above interest/attorney fee clause.
If an invoice is sent 40 or more days from when the produce was received by the buyer, there may be a loss of trust rights. Therefore, invoices from growers’ agents to their buyers must be promptly sent to the grower agent’s buyers. A grower’s agent will likely be liable to the grower for payment if the grower’s agent does not preserve the grower’s trust rights.
If the shipping and/or billing documents are in electronic form with the proper trust notice language on the documents, a licensee can meet the requirement of giving the trust notice so long as the electronic transmission can be verified.
INTERNATIONAL SHIPPERS TO THE U.S.
International companies shipping produce to the U.S. are eligible for protection under the trust. However, these companies are not licensed under PACA. So, international companies that export produce to the U.S. can only use the trust notice method to preserve their trust rights, as explained below.