Tоm Lange Company (“Lange”) appeals the district court’s affirmance of the bankruptcy court’s judgment denying its claim for trust protection under the Perishable Agricultural Commodities Act (“PACA”). Though judgment in its favor was affirmed by the district court, Uni-Fin cross-appeals the district court’s rejection of the bankruptcy court’s analysis. We affirm in part, reverse in part, and remand.
Beginning in 1986, Lange sold Lombardo produce under an account numbered by Lange as 143. In January 1988, the parties entered a written agreement stating that the credit terms for all transactions were net thirty days from the date of shipment. However, all of the invoices stated that invoices were considered overdue if not paid within forty-five days. Lange sent Lombardo statements for account 143 on a weekly basis; the statements, like the invoices, reflected that payment was due within forty-five days. In reality, Lombardo paid only one of the 120 transactions within the thirty days required by the parties’ written agreement.
On July 2, 1988, Lange stopped selling-produce to Lombardo because Lombardo owed Lange over $400,000. The following October, in an attempt to help Lombardo with its financial difficulties, Lange purchased eleven of Lombardo’s produce stalls, then leased them back to Lombardo for threе years. One of the lease’s provisions gave Lombardo an option to repurchase nine of the stalls, at the same sales price, if its accounts with Lange were current. If it was unable to exercise the option, Lombardo had thirty days to notify Lange of its desire to renew the lease. The parties also agreed in writing to extend the time for payment on account 143 by an additional twenty weeks.
Once the transactions involving the stalls had been executed, Lange resumed selling produce to Lombardo. In order to distinguish future transactions from the ones in account 143, business was conducted under account 466. By this time, however, Lange had changed its invoices and weekly statements to reflect that payment was due within thirty days. Lange supplied Lombardo with sixty-one loads of produce under account 466; over $240,000 remains unpaid.
Lombardo filed for bankruptcy, and Lange filed an adversary complaint seeking to preserve and enforce its PACA trust status. The complaint was opposed by Uni-Fin, which holds a first perfected security interest in Lombardo’s accounts receivable. The bankruptcy court rejected Lange’s claims of trust protection for both accounts. After a hearing, the court held “that the parties’ terms of pаyment were dictated by the parties’ course of dealing rather than their sham written agreement.” In re Lombardo Fruit & Produce Co.,
The district court rejected the bankruptcy court’s reliance оn the parties’ course of dealing, reasoning that our intervening decision in Hull Co. v. Hauser’s Foods, Inc.,
II. DISCUSSION
A. PACA’s Provisions
Due to the scarcity of case law on the subject, it is helpful to begin with a brief overview of PACA. PACA was designed to protect small farmers and growers from “ ‘the sharp practices of financially irresponsible and unsсrupulous brokers in perishable commodities.’ ” Hull Co. v. Hauser’s Foods, Inc.,
PACA’s trust provision has the precise effect Congress intended; namely, in the event the seller does not receive payment, the seller is elevated to a priority position above that of all the buyer’s secured creditors. See Sanzone-Palmisano Co. v. M. Seaman Enters., Inc.,
(1) after expiration of the time prescribed by which payment must be made, as set forth in regulations issuеd by the Secretary, (ii) after expiration of such other time by which payment must be made, as the parties have expressly agreed to in writing before entering into the transaction, or (in) after the time the supplier, seller, or agent has received notice that the payment instrument promptly presented fоr payment has been dishonored.
Id. The Secretary’s regulations require payment be made within ten days after the produce is accepted, 7 C.F.R. § 46.2(aa)(5), but permit the parties to agree to a longer term provided that term is no longer than thirty days. Id. § 46.46(f)(2).
B. Account 143
We affirm the district court’s conclusion that the parties’ agreement to extend the payment terms for account 143 beyond the thirty-day maximum allowed by the regulations deprives Lange of trust protection. In conformance with the provisions we outlined above, Lange and Lombardo executed a written agreement that complied with PACA and its regulations. However, they lаter modified that written agreement with respect to the deliveries under account 143; at that moment, an agreement complying with PACA no longer existed. There being no written agreement complying with PACA, Lange is prohibited from claiming PACA’s trust protection.
Lange correctly points out that PACA requires a written agreement bе executed before the underlying transactions for produce take place. See 7 U.S.C. § 499e(c)(3)(ii). From this, it concludes that any agreements reached after the transactions take place are wholly irrelevant for PACA purposes. We reject this position because it allows the parties to rеcognize the form of PACA without complying with its substance. PACA imposes a trust upon the funds held by delinquent purchasers if a written agreement required
C. Account 466
1. The Stall Transaction
The district court affirmed the denial of trust protection on account 466 because
the credit extended to Lombardo under Account 466 was an open account “secured” by equity. When viewed in the context оf the entire purchase-leasebaek-option transaction, the $150,000 line of credit was effectively secured by the equity Lange acquired in the produce stalls. This conclusion is further supported by the fact that Lombardo’s three-year option to repurchase its stalls from Lange could be exercised only if its debt with Lange was paid in full.
In re Lombardo Fruit & Produce Co.,
2. Course of Dealing
Uni-Fin cross-appeals the district court’s holding that the parties’ course of dealing is not relevant when considering whether the seller is entitled to trust protection. We agree -with the district court’s conclusion in this regard. In so doing, we join the other courts that have addressed this issuе. A & J Produce Corp. v. CIT Group/Factoring, Inc.,
Uni-Fin relies heavily on the bankruptcy court’s conclusion that the parties’ written agreement was a sham because Lom-bardo paid within the thirty day period only once. This factual finding is not relevant to PACA trust analysis for a variety of reasons. First, the parties had an agreement that met PACA’s requirements. This agreement is а perfectly valid agreement, fully enforceable under contract law. The fact that, in the past, Lange has not demanded payment on time does not invalidate the contract. If Lange sued Lombardo for making a late payment, Lange’s past failures to insist upon its rights under the contract would not be а defense to late payment. Similarly, PACA
Secondly, we agree with the district court that a course of dealing analysis conflicts with this court’s prior holding in Hull Co. In that case, we held that only written extensions, and not oral extensions, could validly extend the payment terms beyond those specified in the parties’ written agreement.
Thirdly, we note that PACA’s trust provision is modeled on the one apрearing in the Packers and Stockyards Act (“PSA”), 7 U.S.C. §§ 196-97 (1988). See, e.g., In re Fresh Approach,
III. CONCLUSION
The district court properly upheld the denial of Lange’s PACA trust with regard to account 143 because the parties’ written modification to their agreement left Lange without an agreement complying with the requirements for PACA’s protection. However, the parties did have a valid written agreement with respect to account 466 that was not rendered invalid by virtue of their transaction involving the stalls. Furthermore, the parties’ course of dealing is not relevant in determining PACA trust eligibility. Accordingly, we affirm as to account 143 and reverse as to account 466. The ease is remanded to the district court with instructions to remand to the bankruptcy court for further proceedings cоnsistent with this opinion.
Notes
. The creation of such protective mechanisms is hardly unusual. For instance, a mechanic’s lien also allows a particular class of individuals (contractors and suppliers) to collect their money ahead of those with otherwise superior lien rights (mortgage companies).
. Based on our holding on this issue, there is no reason to address the adequacy of the notice on the invoices and weekly statements.
. This feature distinguishes this case from Hull Co., in which we refused to accord any meaning to an oral agreement to extend payment terms beyond those specified in the written agreement.
. The reliability of this figure is questionаble given that the transaction was not solely an exchange of property for cash. In return for the stalls, Lange gave Lombardo money, an option to repurchase, and a renewable lease.
. The legislative history of PACA’s 1984 Amendment clearly sets forth the purpose and need for the Legislation:
H.R. 3867 amends the Perishable Agricultural Commodities Act to increase the legal protection for unpaid sellers and suppliers of perishable agricultural commodities until full payment of sums due have been received by them. The trust is a nonsegregated floating trust that would apply to the commodities, products derived therefrom, and any receivables or proceeds from their sale in the hands of the commission merchant, dealer of broker. H.R.Rep. No. 543, 98th Cong., 2d Sess. 2, reprinted in 1984 U.S.Code Cong. & Admin.News 405, 406.