The trust provision of the Packers and Stockyards (P&S) Act gives certain kinds of protection to those who sell livestock to meat packers and don't get paid. The protection, however, is not available in all cases and is not automatic.

To get the benefit of the trust provision, you must understand what the P&S Act does and does not provide, what the U.S. Department of Agriculture (USDA) can and cannot do, and what you as a livestock seller must do to protect your own interest.

What Sellers Are Protected? Only cash sellers - whether they are producers, dealers, or market agencies - are protected by the trust provision. The provision does not protect sellers who expressly extend credit. This is not as simple as it may seem, however, and you, the livestock seller, must be careful about what you agree to and what you sign.

Suppose, when your livestock is delivered, you agree that a check may be mailed to by the close of the next business day or, in the case of a sale on a grade-and-yield basis, by the close of the first business day after the purchase price is determined. This is not an extension of credit, and you have the benefit of the trust provision. A suggested form of agreement for mailing a check without extending credit appears near the end of this pamphlet.

Read Documents Carefully Before Signing. The prompt pay provision of the P&S Act does permit an express written agreement between buyer and seller. These agreements have been included in small print on stockyard receipts, scale tickets, and other documents. Never sign anything without reading everything, including the small print. Never sign anything you do not understand. By doing so, you could compromise your interest in the trust by raising a question of your intention to sell on a cash basis.

What To Do If You Don't Get Paid. The first thing to do is to give written notice to both the packer and the closest P&S regional office that the packer has failed to pay for livestock. The notice can be given by letter, mailgram, or telegram, but it must be in writing. A suggested form for this notice appears below. If you do not give the required written notice, you lose the benefit of the trust provision.

There Is A Time Limit For Giving Notice. If a payment instrument is not honored for any reason - for example, a check bounces - you, as a seller of livestock, must give such notice within 15 business days after you receive notice that the instrument is dishonored.

If no payment instrument is received - for example, you do not receive a check - and if the sale was not on a grade-and-yield basis, the time limit is 30 days after the next business day following purchase and transfer of possession of the livestock.

If no payment instrument is received and if the sale was on a grade-and-yield basis, the time limit is 30 days after the first business day following determination of the purchase price.

Do not delay giving your notice, or you may lose the benefit of the trust provision.

Which Packers Are Subject To The Trust Provision? Not all packers are subject to the trust provision - only packers whose average annual purchases of livestock exceed $500,000. If you do not know whether a packer is subject to the trust provision, contact the closest P&S regional office.

What Property Of A Packer Is Subject To A Trust? Not all property of a packer is subject to a trust under the provision - only livestock bought in cash sales, and inventories, receivables, and proceeds derived from that livestock. Other property is not subject to such a trust - for example, plant equipment and buildings.

What USDA Can And Cannot Do. USDA can penalize a packer for failing to pay for livestock, as a violation of the P&S Act. And while these proceedings are in progress, USDA can ask a court to enjoin a packer from future violations of the P&S Act, USDA, however, cannot furnish you with a lawyer to collect payment for you, and it cannot compel a packer to pay you.

What a Court Can Do. A court can order a packer to hold the specified property in trust for the benefit of unpaid cash sellers of livestock who have given the notices as required. A court can only order this upon receiving a written complaint. A complaint may be filed by any unpaid cash seller of livestock.

What You Must Do After Such A Court Order. If such a court order is issued - whether USDA or anyone else filed the complaint - you, as an unpaid cash seller, must petition the court to order payment to you from the property held in trust. If you do not, the court may order that property to be distributed to other unpaid cash sellers who file a petition.

Sample Forms. The following form can be used as a written agreement between buyer and seller for mailing a check without extending credit:

I do not intend to be present at the point of transfer of possession of livestock sold by me to (name of packer, market agency, or dealer) for the purpose of receiving a check in payment for such livestock.

I hereby direct (name of packer, market agency or dealer) to make payment for livestock purchases from me, by mailing a check for the full amount of the purchase price before the close of the next business day following the purchase of livestock and transfer of possession thereof or, in the case of a purchase on a "carcass" or "grade and yield" basis, not later than the close of the first business day following determination of the purchase price.

This does not constitute an extension of credit to (name of packer, market agency, or dealer). This is subject to cancellation by me at any time, and if not canceled by (date), it shall terminate on that date.

Name:

Date:

(Omit the first statement if the seller prefers to receive payment by a mailed check for other reasons.)

The following form can be used for notifying the packer and the closest P&S regional office that the packer has failed to pay for livestock. Send a copy to each.

Identification of packer:

Identification of seller:

Date of transaction:

Date of seller's receipt of notice that a payment instrument has been dishonored (if applicable):

Amount of money due: $

Last updated 02/05/2007