As discussed in our previous blog entry An Overview of the PACA Reparations Process, the Perishable Agricultural Commodities Act (“PACA”) was enacted by Congress in order to promote fair trade in the fruit and vegetable industry. In order to also afford special protection for produce sellers, Congress amended PACA in 1984 to include its trust provisions.
Generally, a trust is a relationship whereby property is held by one person for the benefit of another. In the context of PACA, produce sellers are trust beneficiaries, produce buyers are trustees, and the buyers’ produce inventory, products made from produce, and proceeds from produce sale all constitute trust property. The result is a unique statutory relationship whereby produce buyers are obligated to act as fiduciaries for sellers, and are unable to use produce and its proceeds in order to pay other creditors thereby leaving their produce sellers unpaid.
The PACA trust affords unpaid produce sellers unique and powerful collection tools. If trust assets are being dissipated, a Court may issue a temporary restraining order freezing the assets or take other necessary action to prevent the assets from further dissipation. If the produce buyer does not have enough money to repay its seller, the buyer’s principals can be personally liable, with such debts being nondischargeable in bankruptcy. Finally, a produce seller may even sue other parties that received PACA trust assets from the defaulting produce buyer.
It should be noted, however, that produce sellers do need to take steps in order to proactively protect their PACA trust. Specifically, in order to preserve their PACA trust rights, sellers must either send a proper Notice of Intent to Preserve Trust Benefits to buyers within thirty (30) days after expiration of the parties’ payment terms, or include language required by PACA on the face of their invoices in order to give notice that the produce sold is subject to the trust.
Please note that this is only a general overview of the trust provisions of PACA. At the VC Law Group, we regularly advise both buyers and sellers of their rights and responsibilities under PACA. For more information, please contact the VC Law Group via telephone at (858) 519-7333 or email at info@thevclawgroup.com.