Paperwork Blunders

#3 Agreeing to payment terms other than PACA Prompt
Virtually everyone in the produce industry understands that extending payment terms beyond 30 days forfeits the seller’s Perishable Agricultural Commodities Act (PACA) trust protection.

What’s less understood is the risk involved in agreeing to payment terms within 30 days, but different than “PACA Prompt” which per PACA regulation (7 CFR 46.2(aa)(5)) provides “Payment for produce purchased by a buyer, within 10 days after the day on which the produce is accepted.”

A seller that agrees to different terms, say twenty-one days, will need to take on some additional paperwork responsibilities to comply with the PACA trust regulations. First, the seller is required to enter into a pre-transaction agreement with the buyer memorializing these terms. Second, all invoices and other documentation setting forth payment terms must reflect these new terms.

In the event a PACA trust action becomes necessary, a seller that fails to keep its paperwork in order should not be surprised when the debtor and/or other creditors challenge its eligibility for trust protection. And while most courts have rejected these arguments, a smart seller would avoid the time and expense of countering this type of legal maneuvering by either refusing to deviate from PACA Prompt, or by keeping up with the paperwork demands of alternative terms.

#4 not objecting in writing to misrepresentations of fact
When documentation of any kind mispresents either the facts or the agreed-upon terms of sale, it’s important to promptly object in writing to the sender. Picking up the telephone and setting the matter straight verbally may seem to be the natural response, but responding in writing (in addition to any verbal conversation you may have) will protect you in the event of a dispute.

 #5 Not confirming modifications in writing
When sales are agreed to, documents such as sales confirmations and purchase orders (POs) tend to follow as a matter of course.

But when the original selling price or terms (e.g., consignment or price-after-sale) are later modified by agreement between the parties, documentation is sometimes neglected.

It’s important to remember that the proponent of any modification to the original agreement has the burden of proving it, should one of the parties “forget” it agreed to the modification. Fortunately, confirming modifications is easy enough; a fax or email stating, “As discussed, the price for PO #123 will be reduced by $2.00 a box” will suffice.

#6 Failing to provide a detailed account of sales reflecting a prompt and proper resale of distressed product
When buyers accept product that has failed to meet contract specifications, they are entitled to damages equal to the difference between the market value the product should have had (had it delivered in good condition) and the market value of the distressed product received, plus incidental damages such as inspection fees.

The most contentious piece of this damages formula tends to be the market value of the distressed product, because of the difficulty in assessing the value of produce with high levels of defects.