June 20, 2018

Misbranding is a violation of PACA and can result in a Breach of Contract

What Constitutes misbranding?

Misbranding, in its most elementary form, is a misrepresentation of what is being sold and shipped.  As it relates to a sales contract, PACA defines it as a violation of section 2(5) to misrepresent by word, act, mark, stencil, label, statement, or deed, the character, kind, grade, quality, quantity, size, pack, weight, condition, degree of maturity, or state, country, region, of any perishable agricultural commodity received, shipped, sold, or offered to be sold in interstate or foreign commerce.”  So what happens if there is misbranding, even if it is inadvertent?  First, the buyer may have the right under the terms of sales contract to reject based on a breach of the sales agreement. Next, the responsible firm for the misbranding must make arrangements to correct the markings on the container prior to any resale. 

 Since there is now a breach of contract on the part of the seller, the buyer may elect to, rather than correct the misbranding, reject the shipment rather than go through the process of correcting the infraction.  This would mean that you will have to move the shipment to a location where corrective action can be taken to bring the shipment into compliance.  Generally, a wholesaler that you work closely with would be best suited to make the correction on your behalf, and then sell the shipment under a consignment basis.  In such a situation, you must properly document that the misbranding has been corrected.  That is best accomplished by making sure the wholesaler can document the correction by pictures or other means, dependent on the violation, ensuring that you can have documented proof.

What are the penalties for misbranding?

The PACA defines the misbranding violations as serious, very serious, or repeated and/or flagrant, depending upon on the circumstances of the misrepresentation. If informal settlement of a violation is appropriate, PACA will provide written warnings (no more than two for separate violations) and an opportunity to explain how preventative action will be taken.  A warning letter will include an explanation of the requirements of the Act and recommendations of actions that you must take to avoid future violations. After two violations, if there is a cumulative-record of violations within two years,  a monetary schedule of penalties are assessed and at a certain point, if the violations are repeated and flagrant, an administrative action against the violator is potential with the possibility of a suspension or revocation of the PACA license.    

Misbranding can easily be avoided by attention to detail with how commodities are verbally represented with the utilization of precise language, ensuring master shipping cartons are manufactured correctly and packaging material for value added produce are correctly printed.  Make sure that your company has an internal champion that is responsible for adhering to all the appropriate, State, Federal and International requirements.

If you have any questions, Ken Gilliland (949) 885-2267, [email protected] or Matt McInerney (949) 885-2263 [email protected].