Perishable Agricultural Commodities Act

A lender that finances the inventory of produce purchasers could lose its lien because of provisions in the 1984 amendments to the Perishable Agriculture Commodities Act (PACA). As amended, PACA introduces a constructive trust for the benefit of unpaid suppliers of produce that sell to commission merchants, dealers, or brokers. Until the supplier's claim is paid in full, the purchaser is deemed to hold the produce and proceeds of sales in trust. The trust is a floating trust covering all of a dealer's commodity-related assets. In the case of In re Fresh Approach Inc. (1985), the court held that the produce and sales proceeds in the possession of the bankrupt purchaser were trust assets and therefore not subject to administration as part of the debtor's estate in bankruptcy. The purchaser had to turn those assets over to the seller. If the borrower has a few key suppliers, the lender should try to obtain from them a written waiver of their right to assert their trust in preference to the lender's security interest.