Agricultural Law – Frequently Asked Questions
1. What should be stated on my invoice, and is there anything I need to be careful not to say?
An invoice should always include language that states that states that “A FINANCE CHARGE calculated at the rate of 1 ½% PER MONTH, or at the highest rate permitted by law, will be applied to ALL PAST DUE ACCOUNTS.”
In addition, a court recently addressed whether the contractual rate (stated on the invoices) or the federal statutory interest applies post-judgment. The court concluded that the federal statutory interest (which is currently 0.12%) applies to post-judgment awards unless the parties state that their intent is to override the federal statute – 29 U.S.C. § 1961. In short, to avoid a minuscule interest rate, in favor of contractual interest, your invoice should specifically state that “Post-Judgment interest shall be at the rate of 1 ½ % per month, or at the highest rate permitted by law, not at the federal post-judgment interest rate, as stated in 29 U.S.C. § 1961; the 1 ½% PER MONTH interest rate shall override the federal post-judgment interest rate.”
In addition, you may choose to include verbiage providing for attorneys’ fees and collection costs, however, there is some risk in doing so, because in many states, including California, this language is reciprocal, meaning that the prevailing party recovers the fees and costs. In short, if you lose, you could end up paying the opposing party’s fees and expenses. However, if you choose to add this language, it should read: “Should any action be commenced between the parties to this contract, the prevailing party in such action shall be entitled to, in addition to such other relief as may be granted, an award for the actual attorneys’ fees and costs in bringing such action and/or enforcing any judgment.
Most invoices also include the standard language, which states: “ALL SALES FOB, NO GRADE CONTRACT. All claims must be reported by WRITTEN NOTICE received by seller within 24 HOURS of arrival and supported by valid and acceptable USDA INSPECTIONS. NO DEDUCTIONS ALLOWED without prior written authorization from seller.”
Also, and as noted below, USDA licensees may use the “invoice method” to preserve their PACA trust rights, which requires that the licensee print the following language on its invoices: “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.”
It is also important to review invoices received from the buyer, as they may contain provisions that were not previously agreed to by the supplier and/or waive your PACA trust rights in which case the supplier must give the buyer Notification of objection to the new terms within a reasonable time after notice of them (via the invoice or confirmation) is received. For example, if payment terms are restated at, say, 33 days, which is more than the allowed 30 days from receipt and acceptance as the maximum to avoid waiver of a supplier’s PACA trust rights. In most states, UCC section 2-207 has been adopted. [in California, Com. Code §2-207; and in Washington, RCW 62A.2-207]. This section provides that “a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
As UCC 2-207 further states: “(1) A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon, unless acceptance is expressly made conditional on assent to the additional or different terms.
Further, “(2) The additional terms are to be construed as proposals for addition to the contract. Between merchants such terms become part of the contract unless:
(a) The offer expressly limits acceptance to the terms of the offer;
(b) They materially alter it; or
(c) Notification of objection to them has already been given or is
given within a reasonable time after notice of them is received.
(3) Conduct by both parties which recognizes the existence of a
contract is sufficient to establish a contract for sale although the
writings of the parties do not otherwise establish a contract. In
such case the terms of the particular contract consist of those terms
on which the writings of the parties agree, together with any
supplementary terms incorporated under any other provisions of this code.
2. What is the Perishable Agricultural Commodities Act, and What Does It Do For Me?
The Perishable Agricultural Commodities Act of 1930, as amended 7 U.S.C. §§ 499a-t (“PACA”) provides many protections to growers and shippers of fresh fruits and vegetables. For example, it includes licensing requirements (see 7 U.S.C. §499c), prohibitions against unfair conduct (see 7 U.S.C. § 499b), and an administrative process which allows growers and shippers to collect damages by either filing a reparation complaint with the United States Department of Agriculture (“USDA”) or by a lawsuit in a court of competent jurisdiction. The USDA’s regulations also set various standards, such as good delivery standards (see 7 C.F.R. §46.44) and procedures for dealing with misrepresentations and misbranding violations (see 7 C.F.R. §46.45). Also, the USDA regulations include rules against rejecting purchases without legal justification [see 7 C.F.R. §46.2(bb)]. In addition, the PACA branch handles disciplinary proceedings against individuals who are responsibly connected [see 7 C.F.R. § 45.2(ff)] to a company that files for bankruptcy protection, or fails to promptly account to or pay its produce suppliers [see 7 C.F.R. § 46.4].
3. The PACA Trust Provisions Provide One Of The Best Collection Tools For Suppliers.
One of the most important collection tools for sellers of fresh fruit and vegetables is the PACA trust, which was enacted in 1984 as an amendment to the Perishable Agricultural Commodities Act. See 7 U.S.C. §499e(c). At the time, John Norton was the Secretary of Agriculture, and he saw how the Packers and Stockyard Act benefited cattle producers. As a result, as a grower himself, Norton pushed for an amendment that incorporated provisions similar to the trust sections of the Packers and Stockyards Act. The PACA trust amendment places suppliers first in line should a buyer file for bankruptcy protection, ahead of other creditors, including secured lenders and unsecured creditors. It also imposes personal liability on individuals who control the buyer, which can provide a gold mine of additional assets.
4. What Perishable Agricultural Commodities Qualify For PACA Trust Protection?
Trust assets are made up of perishable agricultural commodities (which include both fresh and frozen fruits and vegetables, whether or not packed in ice, as well as cherries in brine, unless the produce has been manufactured into articles of food of a different kind or character, such as canned vegetables or dried fruit, because the risk that PACA is meant to protect is payment for produce that has a finite shelf life) received in all transactions, all inventories of food or other products derived from such perishable agricultural commodities, and all receivables or proceeds from the sale of such commodities and food or products derived therefrom. Trust assets are to be preserved as a nonsegregated “floating” trust. Commingling of trust assets is contemplated. See 7 C.F.R. § 46.46(d).
As PACA states: “Perishable agricultural commodities received by a commission merchant, dealer or broker in all transactions, and all inventories of food or other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, shall be held by the commission merchant, dealer, or broker for the benefit of all unpaid suppliers.”
In addition, several courts have held that assets purchased with the proceeds from the sale of perishable agricultural commodities are PACA trust assets. Moreover, one Court concluded that in the case of retail grocers, they often co-mingle the proceeds from the sale of produce with the proceeds from the sale of other commodities; however, since the buyer is in the best position to trace the flow of money, the court placed the burden of tracing on the grocer.
The USDA’s regulations [7 C.F.R. §46.2(u)] state that “the effects of the following operations shall not be considered as changing a commodity into a food of a different kind or character: Water, steam, or oil blanching, battering, coating, chopping, color adding, curing, cutting, dicing, drying for the removal of surface moisture; fumigating, gassing, heating for insect control, ripening and coloring; removal of seed, pits, stems, calyx, husk, pods rind, skin, peel, et cetera; polishing, precooling, refrigerating, shredding, slicing, trimming, washing with or without chemicals; waxing, adding of sugar or other sweetening agents; adding ascorbic acid or other agents to retard oxidation; mixing of several kinds of sliced, chopped, or diced fruit or vegetables for packaging in any type of containers; or comparable methods of preparation.” In short, salsa is likely a perishable agricultural commodity, as are batter coated french fries. The USDA does not count nuts as a perishable agricultural commodity; however, there are decisions that suggest that they are. In addition, it can be argued that odd-ball vegetables such as a pumpkin decorated for Halloween is a perishable agricultural commodity, which can inspire creative arguments. One USDA decision concluded that dates are a perishable agricultural commodity. The USDA noted Hydration is used to “soften the texture of some date cultivars and is part of the curing and ripening process.” The USDA also stated that “dates are berries that are fruit of date palm trees,” and the term “perishable agricultural commodities” includes fresh fruits and fresh vegetables of every kind and character, and although semi-soft dates have longer storage-lives, “we have long held that other perishable items with considerable shelf-lives, such as garlic and potatoes, are subject to PACA.”
Commission merchants, dealers and brokers are required to maintain trust assets in a manner that such assets are freely available to satisfy outstanding obligations to sellers of perishable agricultural commodities. Any act or omission which is inconsistent with this responsibility, including dissipation of trust assets, is unlawful and in violation of section 2 of the Act. 7 U.S.C. § 499b.
Consequently, it is extremely important for a supplier not to waive its PACA trust rights, which can occur if the payment terms are greater than 30 days. As the USDA regulations state: “The maximum time for payment for a shipment to which a seller, supplier, or agent can agree and still qualify for coverage under the trust is 30 days after receipt and acceptance of the commodities.” See 7 C.F.R. § 46.46 (d)(2). Care must be taken to avoid inadvertently extending the payment terms by, for example, stating that payment is due within 30 days of the receipt of the invoice (which may be later than 30 days after receipt and acceptance of the shipment).
In addition, a supplier should not enter into a pre-transaction agreement with the buyer allowing it to pay an invoice more than 30 days after the sale. The current “prompt” payment regulations – 7 C.F.R. §46.46(e)(1) – require that any payments beyond “prompt” (i.e., “full payment promptly”) pay – which is usually 10 days after receipt and acceptance for a standard sale – must be expressly agreed to and reduced to writing, before entering into the transaction. See the USDA regulations – 7 C.F.R. § 46.2(aa) – for a complete list of the various payment terms for different arrangements, such as consignments. In addition, a copy of the agreement must be retained in the files of each party, but certainly in the supplier’s files.
5. I am not licensed by the USDA; can I still preserve my PACA trust rights?
Only PACA licensees may use the invoice method of perfecting their PACA trust rights, by placing the following statement on their invoices (the regulations state that this means communications that are customarily used between parties to a transaction in perishable agricultural commodities in whatever form, documentary or electronic, for billing or invoicing purposes”): “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.” Some suppliers elect to become licensed, given the enormous value of the PACA trust provisions and the ease in using the “invoice method” to perfect their PACA trust rights.
If a supplier is not a licensee, however, it can still claim PACA trust rights if it properly preserves its trust rights by sending a “Notice of Intent to Preserve Trust Benefits” to the buyer, which must include the following information: (1) The Notice of Intent to Preserve Benefits under the trust must be in writing, and it must include the statement that it is a Notice of Intent to Preserve Trust Benefits and must include information which establishes for each shipment:(i) The names and addresses of the trust beneficiary, seller-supplier, commission merchant, or agent and the debtor, as applicable, (ii) The date of the transaction, commodity, invoice price, and terms of payment (if appropriate), (iii) The date of receipt of notice that a payment instrument has been dishonored (if appropriate), and (iv) The amount past due and unpaid.
(2) 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 (usually 10 days for a straight sale, but see the USDA regulations for the definition of “full payment promptly. 7 C.F.R. §46.46(aa).
Fortunately, effective April 13, 2011, the USDA issued a final rule – that allows buyers and suppliers to enter into a post-default payment scheduled agreement for payment of the past due sums. See the Federal Register, Vol. 76, No. 70 (dated Aril 12, 2011). Under this final rule, if the supplier has otherwise properly perfected its PACA trust rights, it may agree to accept payments over time, but only after the buyer has defaulted on its payments. In short, prior to a buyer’s failure to pay an invoice timely, a supplier should be extremely careful not to enter into any agreement postponing payment. In other words, if a buyer says: “I can’t pay you this month, could you give me a few more days.” The answer should be “no,” particularly if the extended payment term would take the supplier outside the maximum payment term allowed (30 days from receipt and acceptance). Then, if the buyer fails to pay on time, the supplier can negotiate a payment plan, as allowed by the new USDA regulation.
Finally, the USDA’s regulations (7 C.F.R. §46.46(4)&(5) provide for circumstances where a buyer uses invoices or other billing statements which are in an electronic form. Specifically, the regulations state: (4) If the invoice or other billing statement is in electronic form, the licensee has met its requirement of giving the buyer notice of intent to preserve trust benefits on the face of the invoice or other billing statement if the electronic invoice or other billing statement containing the statement set forth in paragraph (f)(3)(i)[which is the standard PACA trust statement found on a supplier’s invoices – “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.” is sent to the buyer and the electronic transmission can be verified. The licensee will be deemed to have given notice to the buyer of its intent to preserve trust benefits if the licensee can verify that the electronic invoice or other billing statement was sent to a third party electronic transaction vendor designated by the buyer. The licensee will have met the requirement of giving the buyer written notice of intent to preserve trust benefits using electronic means if it can verify that the electronic data invoice or other billing statement was transmitted to the buyer, or its designated electronic transaction vendor, irrespective of whether or not the buyer or third party vendor downloads or accepts the trust statement. (5) If a buyer conducts its transactions in perishable agricultural commodities using an electronic system, the buyer or its third party electronic vendor must allow sufficient space for the seller to include the required trust statement of intent to preserve trust benefits in the buyer’s electronic invoices or other billing statement forms. A buyer or its designated third party electronic vendor must accept a seller’s notice of intent to preserve benefits under the trust using the required trust statement, whether in documentary or electronic form, as set forth in paragraphs (d) and (f) of this section. Any act or omission which is inconsistent with this responsibility is unlawful and in violation of Section 2 of the Act (7 U.S.C. 499b).
In addition, if the payment terms stated on the supplier’s invoices do not match whatever the buyer and seller agreed upon, the supplier may have waived its PACA trust rights, and consequently it is essential that the payment terms agreed upon match the payment terms shown on the supplier’s invoices.
Invoices usually provide for interest and attorneys’ fees if an invoice is not timely paid. Under the Uniform Commercial Code, sellers of goods may send a written confirmation of a sale within a reasonable time, which operates as an acceptance, even though it states terms additional to or different from those offered or agreed upon. In other words, the UCC [in California – §2-207 and in Washington – RCW §62A.2-207]. Interest should be within the reasonable realm, such as the standard 18%, which most courts accept. In addition, attorneys’ fees and costs of collection may be recovered, if the invoice so provides.
- What requirements/obligations does the California Food & Agricultural Code provide for growers and shippers of fresh produce?
In addition to PACA, if a grower or shipper is located in California or the contract is to be performed in California, the California Food & Agricultural Code has numerous requirements, which must/should be stated in any contract between a grower and a shipper.
For example, the shipper must provide the grower with a list of applicable code sections that the grower agrees to waive in favor of the shipper. (i.e., the right, under §56280, to obtain inspection certificates for any crop lots alleged to be of substandard condition, the right under §56271(h) to have lot numbers affixed to each individual farm product container, and the right under §5281 to receive notice, within forty-eight (48) hours or otherwise, of any price adjustments and the explanations for the price reductions.
Commission Merchant Law. GROWER acknowledges receipt from ________________ a copy of the revised California Food and Agricultural Code Sections applicable to Commission Merchants under § 56281 including, but not limited to, sections 56271, 56272, 56273, 56280, 56282, and 56351, the full text of all such sections is attached hereto in Exhibit __. GROWER further understands and agrees that unless GROWER returns the form indicating GROWER’s desire to receive the notice of information referred to therein, GROWER voluntarily waives the following rights, an example of the form is:
|(a) the right, under § 56280, to obtain inspection certificates for any lots of any CROP alleged to be of substandard condition;||Grower Initials__________
|(b) the right, under § 56271 (h) to have lot numbers affixed to each individual farm product container; and||Grower Initials__________
|(c) the right, under § 56281 to receive notice, within forty-eight (48) hours or otherwise, of any price adjustments and the explanations therefor.||Grower Initials__________|
In addition, the grower must be given notice of his/her/its rights under the California Commission Merchant Law by attaching to the contract as an exhibit a copy of California Food & Agricultural Code sections 56255, 56271, 56272, 56273.1, 56275, 56280, 56282, and 56351, which the grower should be required to which the grower should acknowledge receipt. Of course, should you need a copy of these sections to attach to the contract, we have copies of them.
Commission Merchant Law. GROWER acknowledges receipt from ________________ a copy of the revised California Food and Agricultural Code Sections applicable to Commission Merchants under § 56281 including, but not limited to, sections 56271, 56272, 56273, 56280, 56282, and 56351, the full text of all such sections is attached hereto in Exhibit ___. GROWER further understands and agrees that unless GROWER returns the form indicating GROWER’s desire to receive the notice of information referred to therein, GROWER voluntarily waives the following rights:
Finally, we strongly recommend – and the California Food & Agricultural Code requires that the following language be added to a shipper’s contract with a grower:
7. Recommended Steps to Take to Comply With California Law: Attach Copies of the Specific Sections of the Food & Agricultural Code to Your Contract (Required) and Make Sure to Include Waiver (Authorization) Verbiage if You Are the Shipper and Insure That You Agree With The Waivers if You Are The Grower.
Notice of GROWER’s Rights under California Commission Merchant Law. GROWER acknowledges that it has received from ______________________ a copy of California Food & Agricultural Code sections 56255, 56271, 56272, 56273, 56273.1, 56275, 56280, 56281, 56282, and 56351, which the Food & Agricultural Code makes applicable to commission merchants, are attached to this Agreement as Exhibit ___.
In marketing the Crop, ______________________ is expressly authorized, without further need to notify or consult GROWER to: 1) sell or consign the Crops through local or destination brokers, or terminal market auctions; 2) sell on an FOB, delivered, consignment, open, price-after-sale, joint account or delayed billing basis; 3) set weekly, monthly, quarterly or annual prices, set ceiling or lid prices; 4) enter into ad or promotional commitments with customers, and to pay promotional allowances, incentives or rebates or to grant volume discounts or other promotional credits to customers; 5) pay any assessments required by law; 6) enter into seasonal supply contracts with certain club stores, foodservice or retail customers for set prices which may ultimately be substantially above or below the market throughout the season; 7) grant price adjustments or credits due to market changes or reported quality or condition of the Crop on arrival. In the case of price adjustments due to quality or condition of the Crop, ______________________is expressly authorized to grant credits or downward adjustments, to convert the terms of sale, repack the Crop, dispose of unmerchantable portions of the Crop (whether from repacking or otherwise), and to do so at GROWER’s expense without the need to obtain official inspections, dump certificates, or other documentation, whenever, in ______________________’s sole judgment, such actions are commercially reasonable or necessary to consummate sales or resolve problems at destination. If ______________________ determines that requiring inspections, accountings or dump certificates from customers would be impractical, unreasonable, or would otherwise delay or impede completion of a sale at destination, GROWER expressly authorizes ______________________ to grant price adjustments without requiring such documentation. GROWER also acknowledges that for certain of ______________________’slong-term or preferred customers, ______________________may accept in-house inspection reports as reliable evidence of condition or quality of produce at destination. Further, GROWERunderstands and affirms that ______________________ is authorized to sell to buyers based upon market protection, and to grant price adjustments based upon any perceived drop in market prices, whether or not this market decline can be substantiated by published market news reports.
______________________ may – but is not required to – collect, file, prosecute, and compromise claims and lawsuits involving payment disputes with customers, including Perishable Agricultural Commodities Act (“PACA”) Trust enforcement actions and carrier claims, in ______________________’s own name. In addition, GROWER agrees that ______________________ does not guarantee any buyer’s payment.
______________________ shall not be liable for errors in judgment in exercising or failing to exercise any of the above-described marketing options, or any others it has been granted under this Agreement, provided it acts in good faith and with due diligence towards the best interests of both parties and it makes a reasonable effort to consult with GROWER prior to making decisions that have a severe negative impact upon the overall sales return that GROWER may receive for its Crop. As stated above, such consultation is not required on everyday decisions, such as who to sell to and for what price, the contract terms, whether to require a receiver to obtain a third-party inspection, whether to grant price adjustments, etc.
To the extent ______________________ incurs expenses or charges (which are not paid by a buyer) as a result of the poor condition or quality of the clementine Crop for inspections, customer credits, repacking, storage fees, materials or supplies, assessments, disposal fees, transportation, collection costs, attorneys’ fees, or any other expenses associated with the exercise of any of the marketing tools or prerogatives set forth in this Agreement, ______________________ is authorized to deduct from any sales proceeds due GROWER the costs and charges so incurred.
Of course, a letter should accompany this waiver explaining why the supplier is requesting the grower to sign the waiver.
California Food & Agricultural Code §56280.5 states that “Any agreement waiving any right guaranteed by this chapter shall set forth in exact language the provision of this code being waived,” which is the reason that a copy of the code section must be attached to the agreement, and why the grower should acknowledge receipt of the sections.
Furthermore, if you don’t have a schedule of charges attached to your contract, you should, because the California Department of Food and Agriculture requires that you do so, unless you have filed with your application for a license as a commission merchant, dealer, or processor a “complete schedule” of designated commissions and charges, together with an itemized listing of all charges for all services. Of course, California Food § 56181 requires “any person engaged in the business of buying, receiving on consignment, soliciting for sale on commission, or negotiating the sale of farm products from a licensee or producer for resale” to be licensed by the State of California.
California Food & Agricultural Code §56184; however, states that these charges may be changed by a written agreement between the parties. California Food & Agricultural Code §56251 does add a cautionary note. It states that a “licensee that finances, lends money, or otherwise makes advances of money or credits are made, an amount that exceeds a reasonable commission or brokerage, together with the usual and customary selling charges or costs of marketing, or both.” Furthermore, this section provides that “He may not otherwise divert to his own use or account or in liquidation of such loans, advances, or credits the moneys, returns, or proceeds accruing from the sale, handling or maketing of any farm product which is handled by him on behalf of or for the account of the licensee to whom or for whom such loans, advances, or credits are made. Consequently, language in a written agreement is essential to justify deductions from sales proceeds, including security agreements, promissory notes, etc. An example of verbiage that might be used in a written agreement is:
Commission/Expenses/Payments. ______________________ shall pay GROWER the total net amount received and collected from the sale of the Crops, after deducting the following: (1) An amount equal to the total sum paid or advanced to or for the account of ______________________ shall pay GROWER the total net amount received and collected from the sale of the Crops, after deducting the following: (1) An amount equal to the total sum paid or advanced to or for the account of GROWER by ______________________; (2) ______________________’s commission as provided in this Agreement; (3) all charges sustained at ______________________’s sole discretion for handling, storing, and shipping charges, all at ______________________’s prevailing rates at the time the service is performed; and (4) all charges for freight, refrigeration, car service, demurrage, brokerage, destination selling charges, price discounts, volume discounts, promotional fees, rebates, advertising, packing materials, labels, collection of claims, and any and all other charges and expenses incurred at ______________________’s sole discretion in marketing or attempting to market the Produce. Attached, as SCHEDULE 1, and incorporated by this reference as though set forth herein is a schedule of charges and provisions applicable to GROWER’s specific Produce. If SCHEDULE 1 is inconsistent with any part of this Agreement, SCHEDULE 1 shall prevail and control to the extent of any such inconsistency. All additional charges for export inspection and consolidation fees shall be charged to Buyer. In the event the proceeds of a sale of GROWER’s Crop are, for any reason, insufficient to cover the charges set out in SCHEDULE 1, GROWER shall pay the deficiency to ______________________ upon demand. Unless specifically listed in SCHEDULE 1 or elsewhere in this Agreement as being paid by GROWER or in cases of delivered sales, the charges to be paid by GROWER will not include the cost for temperature recorders, air bags, inspections or consolidation fees. Any temperature recorder, air bag, inspection, or consolidation charges collected by ______________________ from the buyer will be retained by ______________________. ______________________ shall maintain in its files an itemized statement of charges to be paid by GROWER in connection with the sale. GROWER and ______________________ understand and agree that ______________________ may perform additional palletizing, packaging and/or pre-cooling services according to the preferences of ______________________’s buying customers, and ______________________ shall remit to GROWER all charges imposed or collected for palletizing and/or pre-cooling the Produce.
California Food & Agricultural Code §56302 also provides that: “Every dealer shall pay for any farm product purchased by him at the time and in the manner specified in the contract with the producer or licensee. If no time for payment is set by such contract or made at the time of the delivery, the dealer shall pay for the farm product within 30 days from the delivery or taking possession of such farm product.” In addition, California Food & Agricultural Code §56273 states that “The full amount which is realized from the sales, including all collections, overcharges, and damages, less the agreed commission and other charges, together with a complete account of sales, as provided in Section 56273.1, shall be remitted to the consignor within 10 days after receipt of the moneys by the commission merchant, unless otherwise agreed in writing. In short, like PACA, California and most other states require prompt payment of money due to the producer.
Grower Agreement to Accounting; in order to insure that a grower accepts a shipper’s accounting and is comfortable with it, the contract between the parties should also include language, such as:
Accounting. On a lot-by-lot basis, ______________________ shall provide GROWER with an Account Sales Recap Statement showing the net F.O.B. prices due GROWER, exclusive of any buyer add on charges, for GROWER’s CROPS within twenty-one (21) days of invoicing sales to buyers. The sales commissions, as well as advances, and all other authorized expenses shall be deducted from the gross sales returns. A sample of an Account Sales Recap is attached hereto as Exhibit D, which GROWER has reviewed and agrees provides sufficient information and constitutes a “complete accounting” within the meaning of §§56273 and 56273.1 of the Code. ______________________ shall remit to GROWER all proceeds due, less authorized deductions, no later than twenty (20) days after the Account Sales Recap has been provided to GROWER. ______________________ reserves the right to deduct credits or adjustment amounts from subsequent transactions in the event GROWER has already been credited or paid on transactions at prices in excess of actual returns. Final payment, less deductions for advances, charges and expenses as authorized herein, shall be made at the time of settlement for the current crop year, which unless otherwise agreed to, shall be within forty-five (45) days of the final shipment of GROWER’s CROP. Unless owner related services are provided or paid for by GROWER, GROWER acknowledges that ______________________ may collect and retain, or disburse to appropriate third parties, revenues collected from its customers for “buyer related” services such as temperature recorders, air bags, freight and similar services, and that such charges need not be itemized on GROWER’s accounting.
GROWER agrees that the above-described information shall satisfy the requirements of §§56273 and 56273.1 of the California Food & Agricultural Code as to record keeping and accounting obligations. GROWER hereby waives any additional rights it may have under §56255, 56271, 56273, 56273.1 and 56275, all of which are set forth in Exhibit __ attached hereto.
Accountings. _____________ agrees to provide Grower periodic accountings showing the net sales prices due Grower, exclusive of any buyer add on charges, for Grower’s Produce within twenty-one (21) days of invoicing sales to buyers. The sales commissions, as well as advances, and all other authorized expenses shall be deducted from the gross sales returns. A sample of such an accounting is attached to this Agreement as Exhibit A, which Grower has reviewed and agrees provides sufficient information and constitutes a “complete accounting” within the meaning of the California Food & Agricultural Code §§56273 and 56273.1, which are attached as Exhibit B to this Agreement. _____________ shall remit to Grower all proceeds due, less authorized deductions, no later than twenty (30) days after the Accounting has been provided to Grower. _______________ reserves the right to deduct credits or adjustment amounts from subsequent transactions in the event Grower is credited or paid on transactions at prices in excess of actual returns. Final payment, less deductions for commissions, charges, and expenses as authorized in this Agreement, shall be made at the time of settlement for the current crop year, which unless otherwise agreed to, shall be within forty-five (45) days of the final shipment of Grower’s Produce. Unless buyer related services are provided or paid for by Grower, Grower acknowledges that _________________ may collect and retain, or disburse to appropriate third parties, revenues collected from its customers for “buyer related” services such as temperature recorders, air bags, freight and similar services, and that such charges need not be itemized on Grower’s accounting.
The contract should also state: Grower agrees that the above-described information shall satisfy the requirements of §56273.1 of the California Food & Agricultural Code as to recordkeeping and accounting obligations. Grower waives any additional rights it may have under §§ 56271, 56273, and 56273.1, all of which are set forth in Exhibit C attached to this Agreement.
Finally, under the Uniform Commercial Code, UCC § 2-607(3)(A), which is applicable in most states [in California, Com. Code § 2607(3)(A), in Oregon, ORS § 72.6070(3)(a), and in Washington, RCW § 62A.2-2607] provides that where produce has been accepted, “[t]he buyer must within a reasonable time after the buyer discovers or should have discovered any breach notify the seller of breach or be barred from any remedy . . .” As the statute states, if no notice is given by the buyer, it is “barred from any remedy.” The USDA has recognized in its decisions, three basic reasons for the UCC’s requirement of notice of breach. First, the requirement ‘enables the seller to make adjustments or replacements or to suggest opportunities for cure to the end of minimizing the buyer’s loss and reducing the seller’s own liability to the buyer.’ Second, it ‘affords the seller an opportunity to arm himself for negotiation and litigation.’ Third, the notice requirement gives a seller ‘that same kind of mind balm he gets from the statute of limitations.’
Of course, and as noted above, California has its own licensing requirements. It also mandates when payment must be made for farm product received by the licensee. The California Food & Agricultural Code, also provides for a late charge penalty of 5% per month of the unpaid balance calculated on a daily basis for the period of delinquency for the first month and an additional 1% per month of the unpaid balance calculated on a daily basis. And, the courts have also permitted in addition to the statutory late charges, interest at the contract rate (which should be stated on the invoices). In addition, in some circumstances a producer can claim a “producer’s lien” if the farm product was sent to a processor; the producer’s lien can improve the position of a farmer who sells his or her farm products to a processor.
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