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Home > Not All Debts Are Created Equal

Not All Debts Are Created Equal

PACA: How the Law Supports Local Growers

Litigation frequently results when one business owes another business money and, for one reason or another, either refuses or is unable to pay the debt.

A collections action—as these lawsuits are frequently termed—can be frustrating for the business to which money is owed for a variety of reasons. They are lengthy and expensive, and, in Pennsylvania, attorneys’ fees are recoverable only in limited circumstances, such as where a contract specifically permits the recovery of attorneys’ fees or where a statute specifically authorizes a court to award them. Furthermore, collecting and enforcing a judgment once obtained can be as time-consuming as obtaining the judgment in the first place, since, as we all know, a failing business often owes money to more than one creditor.

Luckily for sellers of fruits and vegetables, the United States Congress has determined that their product is worthy of special treatment.  In consideration of the perishable nature of the product and the ripe environment for unscrupulous merchants and buyers, Congress enacted the Perishable Agricultural Commodities Act of 1930 (“PACA”), and has amended the Act several times to deal with (among other things), misbranding, misrepresentation, bankruptcy, and, perhaps most importantly, delayed payment or non-payment.

In short, PACA promotes fair trading practices in the fruit and vegetable industry by regulating commerce and promoting fair trade and prompt payment.

Brokers, growers’ agents, shippers, wholesale dealers, retailers, processors, and commissioned merchants must have a PACA license in order to take advantage of PACA protections. Growers dealing only  their own products are exempt from PACA licensing requirements.

PACA protections are not limited to “collections actions” within the fruit and vegetable industry; however, PACA provisions promoting prompt payment are among those most frequently invoked by fruit and vegetable merchants.

Under PACA, a fruit or vegetable merchant who has not been paid by a buyer may seek an administrative remedy by filing a “Reparation Complaint” with the United States Department of Agriculture (USDA) within nine months from the date that payment was due. Alternatively, PACA may be enforced through a court proceeding to enforce a statutory “trust” that PACA provides for produce sellers. The trust works by placing certain assets of the debtor business (namely, fruit and vegetable inventory, products derived from fruit and vegetables, and all proceeds from the sale of these fruits and vegetables) out of the reach, so to speak, of other creditors. Thus, the trust has the practical effect of giving a produce grower shorted by a buyer a priority over other creditors, making recovery more probable.  Recovery is also more likely because bankruptcy generally does not affect PACA trust rights and the owners of the debtor-business can be held personally liable for the debt.

In order to preserve PACA trust rights, a seller must strictly follow PACA notification requirements.  First, a seller must provide notification to the buyer of the intention to invoke PACA trust rights within 30 days. Secondly, payment terms other than 10 days must be in writing, and may not exceed 30 days or PACA trust rights are forfeited.

Produce growers and dealers should be cautioned, however, that PACA and the federal regulations enforcing PACA are highly technical, and the failure to follow all of PACA’s provisions and enforcement regulations could result in a waiver of trust rights.

For more information on PACA or other laws and regulations important to commerce and agriculture, contact Charles by email or  at 610-840-0265.