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Perishable Agricultural Commodities Act

Enacted at the request of the fruit and vegetable industry to promote fair trade, the Perishable Agricultural Commodities Act (PACA) makes it difficult for merchants, dealers, and brokers of perishable agricultural commodities (i.e., frozen fruits and vegetables) to take advantage of shippers by wrongfully rejecting their goods upon arrival, at which point it has become expensive and impracticable for such shippers to enforce their legal rights. 

The PACA affords protection by proscribing unfair conduct, imposing licensing requirements, creating a statutory trust, and setting forth procedures for complaints and investigations into wrongdoing. Let’s take a brief look at each category.

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Unfair Conduct – 7 U.S.C. § 499b

The PACA prohibits unfair conduct in the interstate marketing and sale of perishable agricultural commodities. This begs the question — what is unfair conduct? Thankfully, the statute specifies particular acts or omissions that constitute unfair conduct — here are the most common examples:

  1. Dealers must not reject suppliers’ produce without reasonable cause. By the time the produce arrives at the dealers’ location, any arbitrary rejection of the goods would result in substantial harm to the suppliers.

  2. Commission merchants must not dump or destroy the supplier’s produce without reasonable cause.

  3. Merchants, dealers, and brokers must not make false or misleading statements with respect to any transaction to which the PACA applies. 

  4. Merchants, dealers, and brokers must truly and correctly account for and make payments for agricultural commodities.  

  5. Merchants, dealers, and brokers must maintain the trust, which is explained below.

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Licensing – 7 U.S.C. §§ 499c, 499d

In addition to proscribing unfair conduct, the PACA imposes a requirement on all commission merchants, dealers, and brokers to secure valid and effective licenses from the Secretary of the United States Department of Agriculture (the “Secretary”). If any merchant, dealer, or broker engages in the practice of unfair conduct, their license may be revoked. Fines will be imposed on those who operate in this sphere without a license.

Statutory Trust – 7 U.S.C. § 499e

Congress amended the PACA in 1984 for the benefit of unpaid sellers of perishable agricultural commodities by creating a statutory trust for all such commodities received by commission merchants, dealers, and brokers until full payment has been made. This type of trust is called a nonsegregated floating trust, which basically means that the trust beneficiary need not trace the assets to which the trust applies. Rather, the burden is on the buyer (i.e., commission merchant, dealer, or broker) to establish which assets, if any, are not subject to the trust.  

Notwithstanding, if the beneficiary (i.e., supplier/shipper) desires to retain the trust benefits, he must give notice to the buyer of the beneficiary’s intent to preserve the trust. Notice may be given in one of two ways:

  1. The beneficiary must give written notice to the buyer of his intent to preserve the trust benefits within 30 calendar days after payment should have been made; or

  2. The beneficiary must provide notice to the buyer of his intent to preserve the trust using ordinary and usual billing or invoice statements that contain the terms of payment and the following statement, verbatim:

“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.”

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For more information regarding PACA law, please contact Thakur Law Firm, proudly serving Northern and Southern California. We strive to provide solutions to all of your legal needs.

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