One of the most misunderstood, or misused, sections of the Regulations governing the Perishable Agricultural Commodities Act (“PACA”) concern the appropriate time for Growers to receive the proper accountings and prompt payment under PACA. In my experience, few do it correctly and even fewer do it the same way twice. This is a dangerous practice for the Grower because the Grower is the one who bears the risk of waiving its PACA trust rights.
Time and time again, I see cases where a Grower will sit back and wait for its Grower’s Agent to provide an accounting of all the Produce delivered under the parties’ agreement. Once the Grower sees the accounting the Grower begins to look for payment and to calculate the reasonableness of the returns. The problem with this approach is that the Grower’s time to properly perfect its PACA trust rights begins to tick away without regard to whether the Grower’s Agent timely complies with the Regulations. To many Growers operate under the misconception that they are not able to invoice or otherwise perfect their trust rights in their Produce until they receive an accounting from the Grower’s Agent. This is WRONG! Let me show you why…
Important Definitions:
Grower means any person who raises produce for marketing. 7 C.F.R. § 46.2(p).
Growers’ agent means any person operating at shipping point who sells or distributes produce in commerce for or on behalf of growers or others and whose operations may include the planting, harvesting, grading, packing, and furnishing containers, supplies, or other services. 7 C.F.R. § 46.2(q).
Account promptly, except when otherwise specifically agreed upon by the parties, means rendering to the principal a true and correct accounting:
(2) In connection with consignment or joint account transactions, within 10 days after the date of final sale with respect to each shipment, or within 20 days from the date the goods are accepted at destination, whichever comes first: Provided, That whenever a grower’s agent or shipper distributes individual lots of produce for or on behalf of others, accounting to the principal shall be made within 30 days after receipt of the shipment from the principal for sale or within 5 days after the date the agent receives payment for the goods, whichever comes first. Whenever a grower’s agent or shipper harvests, packs, or distributes entire crops or multiple lots therefrom for or on behalf of others, an accounting on the initial shipment shall be rendered within 30 days after receipt of the goods for sale. Accountings for subsequent shipments shall be made at 10-day intervals from the date of the accounting for the initial shipment and a final accounting for the season shall be made to each principal within 30 days from the date the agent receives the last shipment for the season from that principal: Provided further, That whenever the marketing agreement between a principal and agent includes a provision for storage of goods prior to sale, the agent shall render accountings of inventory and expenses incurred to date at 30-day intervals from the date the goods are received by the agent until sales from storage begin, and Provided further, That nothing in the regulations in this part shall prohibit cooperative associations from accounting to their members on the basis of seasonal pools or other arrangements provided by their regulations or bylaws; and
7 C.F.R. § 46.2(z)(2).
Full payment promptly is the term used in the Act in specifying the period of time for making payment without committing a violation of the Act. “Full payment promptly,” for the purpose of determining violations of the Act, means:
(9) Whenever a grower’s agent or shipper harvests, packs, or distributes entire crops or multiple lots therefrom for or on behalf of others, payment for the initial shipment shall be made within 30 days after receipt of the goods for sale or within 5 days after the date the agent receives payment for the goods, whichever comes first. Payment for subsequent shipments shall be made at 10-day intervals from the date of the accounting for the initial shipment or within 5 days after the date the agent receives payment for the goods, whichever comes first, and final payment for the seasons shall be made to each principal within 30 days from the date the agent receives the last shipment for the season from that principal.
7 C.F.R. § 46.2(aa)(9).
Time to Perfect PACA Trust Rights:
Timely filing of a notice of intent to preserve benefits under the trust will be considered to have been made if written notice is given to the debtor within 30 calendar days:
(i) After expiration of the time prescribed by which payment must be made pursuant to regulation,
7 C.F.R. §46.46 (f)(2)(i).
Trust Perfection Formula for Grower/Grower Agent Relationship
The Regulations require a Grower’s Agent to “account promptly” to the Grower in compliance with 7 C.F.R. § 46.2(q)(2). The Regulations further required the Grower’s Agent to make “full payment promptly” to the Grower in compliance with 7 C.F.R. § 46.2(zz)(9).
Simply put, the Grower’s Agent must both account to and pay the Grower for the initial shipment of Produce within 30 days of the Grower’s Agent’s receipt of said Produce. The Regulations further require the Grower’s Agent to make additional prompt accountings on and payments for all subsequent shipments of Produce in 10-day intervals from the date of the Grower’s Agent’s accounting to the Grower for its receipt of the initial shipment of Produce. The Grower’s Agent shall make the final accounting and payment for the season to the Grower within 30 days from the date the Grower’s Agent receives the last shipment of Produce for the season from the Grower. 7 C.F.R. § 46.2(aa)(9).
- Company’s Receipt of Initial Shipment + 30 Days = First Accounting & Payment Due
- Date of First Account & Pay + 10 Days = First Interim Account & Pay
- Date of First Interim Account & Pay + 10 Days = Second Interim Account & Pay….
- Company’s Receipt of Last Shipment + 30 Days = Final Account & Pay
In light of the foregoing payment scheme, the Grower’s last day to timely perfect its PACA trust rights occur thirty (30) days after the expiration of the Grower’s Agent’s time to make full payment promptly under 7 C.F.R. § 46.2(aa)(9).
Key Initiating Dates:
The Grower’s Agent’s statutory obligations to both “account promptly” and to make “full payment promptly” begin on the date the Grower’s Agent first receives Produce from the Grower during a given season.
The Grower’s obligation to perfect its PACA Trust rights – or risk waiver – arises on the date the Grower receives the Grower’s Agent’s accountings under 7 C.F.R. § 46.2(q)(2) and ends thirty (30) days after the expiration of the Grower’s Agent’s last day to make a “full payment promptly” on a given accounting under 7 C.F.R. § 46.2(aa)(9).
Important Take Away:
The Grower’s deadline to timely perfect its PACA trust rights is capable of calculation without any action on the part of the Grower’s Agent. The Grower knows when it shipped Produce to the Grower’s Agent. These dates can be found on either the field pick tickets or the relevant bill of lading. Simply put, the Grower can calculate this date on its own and is responsible for doing so.
Because of this fact, a Grower cannot successfully recover money damages for unpaid Produce invoices under the PACA if it fails to timely perfect its trust rights. Equally important, Courts will not accept the fact that a Grower failed to timely perfect its PACA trust rights because the Grower’s Agent failed to provide the Grower with a timely accounting.