Opinion ID: 399116
Heading Depth: 1
Heading Rank: 1

Heading: cash sales versus credit sales

Text: 6 Congress clearly limited the application of the trust provisions of § 206 of the Packers and Stockyards Act to transactions where: 7 (1) The commodities sold are livestock, as defined in § 2(a) of the Act, 7 U.S.C.A. § 182 (West 1980); 8 (2) The purchaser of the livestock is a packer as defined in § 201 of the Act, 7 U.S.C.A. § 191 (West 1980); 9 (3) The transaction is a cash sale; 10 (4) The cash sellers have not received full payment for their livestock; 11 (5) The packer in question makes average annual purchases of more than $500,000; and 12 (6) The cash sellers have preserved the trust within the required period by giving notice to the packer and by filing that notice with the Secretary of Agriculture. 13 Where each of these conditions has been satisfied, the packer is required to hold in trust for the benefit of unpaid cash sellers any livestock purchased in cash sales, inventories of meat or other products derived from such livestock, and accounts receivable or proceeds obtained through the sale of these items by the packer. 14 The Bank's first argument is that the § 206 trust does not arise in this case because the transactions in question in this case are not cash sales. We find this assertion to be without merit. The Act itself provides specific guidance for the determination of whether a transaction is a cash sale. Subsection (c) of § 206 defines a cash sale to be a sale in which the seller does not expressly extend credit to the buyer. 7 U.S.C.A. § 196(c) (West 1980) (emphasis added). Section 206 itself does not indicate what constitutes an express extension of credit, but § 409 of the Act, 7 U.S.C.A. § 228b (West 1980) provides some assistance. 2 Section 409 requires that purchasers of livestock pay the seller the full amount of the purchase price before the close of the next business day following the purchase and transfer of possession of the livestock, or, if the transaction is on a grade and yield basis, before the close of the next business day following the determination of the purchase price. 3 However, § 409(b) allows the parties to effect payment in another manner so long as the parties expressly agree in writing, in accordance with the terms and conditions specified by the Secretary of Agriculture, to such a financing arrangement. In essence, § 409 of the Act presumes that all livestock sales are cash sales unless the parties expressly agree in writing to make the transaction a credit sale. Read in this context, the language of § 206 defining cash sales to include all sales where the seller has not expressly extended credit contemplates that unless the parties clearly agree in writing to a credit arrangement, the transaction is a cash sale. 4 15 The legislative history of the 1976 amendments supports this view. The Senate Committee on Agriculture and Forestry recognized that § 409 would be critical to determining whether a transaction was a cash or credit sale. Discussing the statutory provision found in § 409(a) allowing the parties to modify in writing the terms of payment established in § 409(a), the Committee stated: 16 Nothing in section 7 would preclude a packer and a producer from agreeing in writing that the packer may transmit through the mails, by the close of the next business day, payment for livestock purchased. Such action would not result in the producer being considered a credit seller. If, however, the agreement is for payment beyond the close of the next business day, the producer would be considered a credit seller and as such would forfeit his rights under the trust. 17 S.Rep. No. 932, 94th Cong., 2d Sess. 12, reprinted in (1976) U.S.Code Cong. & Ad.News 2267, 2278. Since the agreements referred to in this excerpt are required by § 409(b) to be in writing, Congress clearly intended that a writing specifying terms of payment which extended beyond the time allowed in § 409(a) would establish that the transaction is a credit sale. Likewise, where the parties made no such writing, payment would be due within the two-day period specified in § 409(a), and the transaction would thereby be a cash sale. The existence of a writing which merely provides that payment may be made by mailing a check to the seller within the § 409(a) time period would not, as the legislative history notes, transform a cash sale into a credit sale because such an agreement is not an extension of credit. 5 18 Other passages in the legislative history support the rule that an extension of credit exempt from trust protection must be in writing. Rep. Poage, the chairman of the House Committee on Agriculture's Subcommittee on Livestock and Grains, explained in his opening remarks on the floor of the House that if a livestock producer intends to enter into a credit arrangement, he has to write it out so he can fully understand that he is not going to be paid until a certain date. 122 Cong.Rec. 12862 (May 6, 1976) (emphasis added). In addition, Rep. Thone, the principal sponsor of the 1976 amendments, in responding to a question from one congressman regarding whether packers could continue the practice of orally agreeing with producers for payment to occur at a time after the next business day after the purchase and then pledging the accounts receivable from the sale of the meat to a bank, stated that: 19 (T)here is a provision in this legislation which clearly allows that practice to continue. If they want to agree on payment a week from Monday or two weeks from Monday, the first of next year or whatever, they can do that by written contract at any time they so desire to do so. 20 122 Cong.Rec. 12878 (May 6, 1976) (emphasis added). 21 The regulations issued by the Secretary of Agriculture under the authority of § 409(b) are consistent with this interpretation of the Act. Under 9 C.F.R. § 201.200 (1981), 6 packers whose average annual purchases exceed $500,000 may not purchase livestock on credit unless the packer obtains from the seller a written acknowledgment that the seller agrees to make the sale on credit and that the seller waives his rights under the trust provisions of the Act, 7 U.S.C.A. § 196 (West 1980). The regulations also require the packer to retain the acknowledgment and to give a copy of the acknowledgment to the seller. 7 22 For the foregoing reasons, we hold that a livestock purchase is not exempt from the trust provisions of § 206, unless the packer obtains from the seller a writing which clearly indicates that the seller has extended credit to the packer and thereby waived protection of the trust provisions of the Act. In the instant case, there is no evidence that Gotham obtained any such writing from any of the appellee livestock sellers. The record reflects that on October 22, 1977, Gotham did send to parties from whom it had purchased cattle a form for their signatures which basically tracked the language of the suggested form in § 201.200 for a written acknowledgment of an express extension of credit. However, none of the appellees signed such a form or any writing to indicate that credit had been expressly extended. Based on the record in this case, we hold that the appellees were cash sellers within the meaning of the Act. 23 The Bank raises two additional arguments on this question which merit some attention. First, the Bank argues that the credit or cash nature of a sale need not be determined by a writing, but may be ascertained by examining the course of dealings between the parties. Specifically, the Bank urges that the court should find a credit sale under the Act whenever the parties to the livestock transaction have an expectation that payment would occur after the end of the two-day period established by § 409. 8 Although in the abstract such a rule might have some appeal, it is not the rule that Congress selected. To adopt the Bank's view would do violence to the wording of the statute, the intent of Congress, and the regulations which reasonably implement the statute. This we decline to do. 24 The Bank also points to writings which it argues support the conclusion that certain of the appellees were not cash sellers. The writing pointed to in the case of appellee U. S. Sugar is an invoice which U. S. Sugar sent to Gotham following the sale of cattle in question. However, the face of that invoice indicates that the terms of the sale were cash. Defendant's Composite Exhibit 11. With respect to appellee Lykes, the Bank argues that an invoice reflects an agreement to terms of payment as weekly 2-2. Plaintiff's Composite Exhibit 29. Lykes argues in brief that this is not an invoice but merely a delivery receipt. The document in question is unsigned, and no party has pointed to any evidence explaining the meaning of weekly 2-2. 25 No matter how one chooses to characterize these documents, it is clear to this court that they do not constitute an express extension of credit. Not only do these documents fail to contain the language required by 9 C.F.R. § 203.200 or the substantial equivalent thereof, they do not indicate the express intention of the parties to enter into a credit arrangement, nor do they indicate that the sellers intended to waive protection of the trust provisions of the statute. These documents do not, therefore, transform the appellees from cash sellers to credit sellers. 26