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Invoices Determine Paca Trust Compliance

Recently, Meuers Law Firm, P.L. ("The Firm") has been involved in several, very large Perishable Agricultural Commodities Act ("PACA") Trust Enforcement cases that involve the validity of a seller's PACA trust claim against a buyer. These cases have revealed that while produce sellers understand some of PACA's requirements necessary to preserve their PACA trust rights, too many produce sellers do not fully understand these requirements and fail to properly preserve their PACA trust rights. As a result of their failure to properly preserve their PACA trust rights, sellers have lost thousands of dollars in PACA trust benefits. This issue of "PRODUCE LAW NEWSLETTER" will address these concerns and will provide you with minimal guidelines to follow to ensure compliance with PACA.

INVOICE AS NOTICE OF INTENT TO PRESERVE TRUST RIGHTS

Recent PACA Amendments have simplified a PACA licensed seller's preservation of PACA trust rights. To be eligible for this simplified method of trust protection, the seller must have a valid PACA license. The seller can use its invoice or other billing statement as its trust notice. However, the seller MUST include the following language on the front of its invoice or billing document:

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.

The invoice or other billing document must include sufficient detail to allow the buyer to identify the transactions subject to the trust. Each invoice must be sent to the buyer within 30 days after the expiration of the payment term or notice that a check has been dishonored.

PAYMENT TERMS

A seller's invoice must include payment terms. PACA requires prompt payment terms of 10 days after acceptance for produce purchased by a buyer. However, PACA also provides a method which allows the seller and buyer to agree to different payment terms. If the parties want to change the PACA prompt payment terms, a written agreement stating the different payment terms must be signed by parties BEFORE entering into sales transactions. UNDER NO CIRCUMSTANCES CAN PAYMENT TERMS EXCEED 30 DAYS! Payment terms beyond 30 days void a seller's PACA Trust Protection. Both parties are to keep a copy of this agreement in their files. This is called a "written payment terms agreement."

The seller MUST include the terms of the written payment terms agreement on its invoice. The terms on the written payment terms agreement MUST MATCH the terms on the invoice. If the terms of the two documents do not match, the seller loses its PACA trust protection. There are no exceptions to this requirement.

PAYMENT TERMS TRAP

In instances where the invoice states a payment term other than "10 days" and there is no written payment terms agreement, the seller risks losing its PACA trust protection. We have recently faced such objections from buyers and their banks to the validity of our clients' PACA trust claims. They argue that the invoice payment term is the true agreement between the seller and buyer, and in failing to reduce these terms to a prior written agreement, as required by PACA, the seller has voided its PACA trust protection.

To avoid this problem, all documents must be consistent. We recommend using PACA's prompt payment terms of 10 days. This 10 day payment term MUST appear on your invoice.

If it is necessary to use other payment terms, for example, 21 days, then you MUST have a written agreement signed by the buyer prior to the transaction and keep it in your files. The 21 day payment term MUST also appear on your invoice. NO EXCEPTIONS!

ATTORNEYS' FEES, COSTS AND INTEREST

The general rule in American law is that a party is not entitled to attorneys' fees and costs unless they are provided for by law or the party's contract. PACA law does not provide for attorneys' fees. Courts have upheld awards of attorneys' fees and costs to PACA litigants when a provision for attorneys' fees and costs is listed on the invoice.

We recommend the following provision be included on an invoice:

Buyer agrees to pay all costs of collection, including attorneys' fees and costs as additional sums owed in connection with this transaction in the event collection action becomes necessary.

Similarly, entitlement to prejudgment interest can be contracted for by setting forth an interest provision on your invoice. The Firm recommends including the following language on an invoice:

Interest will accrue on any past-due balance at the rate of 1 and 1-2% per month (18% per annum).

SUMMARY

A seller's invoice is the most important document in a produce sale transaction. It can be used as the Notice of Intent to Preserve Trust Benefits. Further, it can provide a means by which the seller can recover interest, attorneys' fees and costs in the event litigation is necessary to enforce payment from the trust.

We strongly recommend that you have your attorney review your invoices and other documents to ensure compliance with PACA Trust requirements.

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