There are two ways to qualify for the protections of the PACA trust. One way applies only to business in the United States that possess a PACA license and the other applies to all other produce businesses. Unless a produce seller follows one or the other of these paths, it WILL NOT qualify for the protections of the PACA trust.
The PACA trust legend on the invoice
Remember, PACA licensees may only preserve their rights under the PACA trust by adding a legend on their invoices. Again, only for produce sellers, receivers or shippers located in the United States may hold a PACA license. Produce merchants based outside the United States must use trust notices.
Once the seller or shipper has a PACA license, the seller must include a legend on every invoice for produce shipped. No legend on the invoice, no automatic protection under the PACA trust. Sample PACA trust language to place on an invoice – Here is a sample of language that a shipper could consider placing at the bottom of 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 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. Receiver agrees that seller 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.”
We recommend that shippers use this paragraph not only to preserve their trust rights, but also to leave open the chance that they may also collect attorney’s fees and interest from their receivers who do not pay for produce received. (Courts in the United States disagree as to what a shipper must do to recover attorney’s fees and interest under the PACA trust.) While the second, third and fourth sentence of the suggested PACA trust legend do not guarantee that the shipper will recover interest an attorney’s fees, if the shipper does not include these sentences or similar sentences, it is far more difficult to also recover attorney’s fee from a buyer who does not pay for the produce received when a PACA collection suit is filed in federal court.
All sellers who want to protect themselves under the PACA trust should check their payment terms. Unless the shipper and receiver have a written contract signed in advance of the shipment, the safest practice is to simply place the words “PACA terms” in the payment terms box on an invoice.
Don’t Waive Your PACA Trust Rights
I am a farmer who has a PACA license. How can I send an invoice with a trust notice if I shipped on consignment or open price or I just don’t know the price?
Some farmers believe that they cannot protect themselves under the PACA trust if they are shipping on consignment or if the price is left open. They are mistaken. When produce is shipped on consignment or on open price terms, obviously the price is not known at the time of shipment. However, even if produce is shipped on consignment or the price of sale is not known, the shipper should still send an invoice to the receiver that includes a special PACA trust legend. In the case of an open price sale, the shipper can place the word “open” in the price column on the invoice. In the case of a shipment on consignment, the consignor can put the word consignment in the place of the price on the invoice. Here is an example of a sample invoice for a shipper of produce based in the US that is licensed under PACA that wants to preserve its PACA trust rights on a consignment shipment.
PACA Trust notices
Those who do not have a PACA license (US farmers who decide that they do not want to have a PACA license or cannot have a PACA license (foreign produce shippers to the US) must send their US receiver a PACA trust notice in order to be protected under PACA. Click to see a sample PACA trust notice form.
Some foreign shippers of produce and US based growers that do not have PACA licenses mistakenly believe that they can preserve their PACA trust rights with the legend on their invoices. (Foreign shippers CANNOT obtain a PACA license, the USDA will only issue PACA licenses to US based produce merchants.) Unless a produce shipper is a US based shipper of produce and unless the US shipper possesses a PACA license issued by USDA, legend WILL NOT preserve their PACA trust. Many shippers who have mistakenly believed that they have preserved their trust rights by means of a legend at the bottom of their invoice later discover when they seek to collect that they do not have PACA trust rights.
US shippers which do not possess a PACA license and ALL foreign shippers MUST send their US receiver a special notice in order to preserve their rights under the PACA trust. If you do not send a PACA trust notice to your US based receiver, you will not have no trust rights.
If you are required to send PACA trust notices, do not send them to your US based receiver too late! If you send your PACA trust notice to your receiver and if it is not received by your receiver within 30 days when the payment is due, the notice will not preserve your PACA trust rights and you will NOT have PACA trust rights. (Remember, the payment period in a written contract can never be more than 30 days after acceptance of the shipment if you wish to qualify for protection under the PACA trust). The PACA regulations require that the notice arrive no later than 30 days after the payment was due. Because the time period for sending out a PACA trust notice to your receiver can vary depending on your payment terms, we recommend that all of our foreign shippers and US based growers who do not have a PACA license make it a practice to send out PACA trust notices no later than 35 days after a shipment is accepted. If the invoice is not paid or if you have not received full payment on your consignment within 30 days after the shipment was received, it is always better to send a PACA trust notice to your receiver.
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