March 6, 2019

Verbal and written contracts MUST have exact language to protect the shipper due to a failure to be able to harvest and ship

“I have a number of loads to ship in the coming week(s) with confirmed prices and P.O. numbers exchanged, however, due to the weather conditions I do not have product available to fulfill my commitment with the buyer. The buyer is threatening to buy against my account if I don’t supply him with the product which has already been confirmed. What should I do now?”

The Western Growers Trade Practices Department has been fielding questions like this one. As the western region of the United States continues to experience the “Perfect Storm” of impressive winter precipitation, along with below-normal temperatures, it is inevitable that a combination of these conditions will have an adverse effect upon projected production yields, harvest quality and the fulfillment of verbal or written contractual obligations.

Let’s take a step back and start with what should be done to protect your company to be in the best position to handle this type of problem.

Prior to entering into a contractual agreement (verbal or written), it is always recommended that you:

  1. Before you even consider entering into such a near or long term contract, know your customer. What is their business type? Retailer, wholesaler, broker? What is their Blue Book rating and have you heard about their reputation from your other trade contacts. Is this a customer we do business with routinely, or is this a new buyer? If an existing customer, what have I heard or experienced in past dealing, and how was any anomaly to a past contract issue handled?  Was it professional and was flexibility shown?  Bottom line, use past experience to drive your current decision, and if the customer is new, be measured with the extent of your commitment until you build an experience of performance with the customer. 
  2. Confirm with your customer the precise number of units they are going to purchase, at what price, and the start and ending shipping dates. Any exclusions (such as condition or otherwise) must be disclosed at the time of negotiations and contained in the contract.
  3. Written contracts are always more protective than verbal contracts. Include language in the contract that will disclose and exclude circumstances beyond your control. This is often referred to in commercial contracts as force majeure events. (Click this link to view some limited examples of force majeure events.) It is a best practice that you send your customer a detailed email during and then after your  negotiations of the contract are finalized.  Clearly detail the terms (FOB or Delivered), price, quantity, shipping location, other contingencies, and that performance of the contract is subject to availability of the produce item. Failure to ship when supply is not available due to weather conditions (or other force majeure events) may be excused only if expressly contained in the contract and then only when the event totally prevents all harvest operations. If your harvest is not totally interrupted, you must make every reasonable effort to ship what limited production you have harvested on a prorated basis if you have multiple commitments.  How this prorate is handled should be disclosed in your agreement.    
  4. Before agreeing, or inking the deal, have the contract agreement reviewed by a designated internal team, or seek the guidance of legal counsel prior to signing any agreement to ensure the contract is consistent with your company policy and meets the shipper complete expectations.

By documenting the complete exceptions to the contract, you will avoid any ambiguity about contract interpretation at a later date. Never assume that failure to ship because of Acts of God, weather conditions and availability excuse your performance under the sales contract.  You MUST clearly define and document conditions excusing performance in the contract and prior to shipment.

If you have any questions, please feel free to contact Western Growers Trade Practices Department’s Bryan Nickerson at [email protected], 949-885-2392.

Examples of force majeure events include: (a) acts of God including, but not limited to, severe weather; (b) flood, fire, earthquake or explosion; (c) war, invasion, hostilities (whether war is declared or not), terrorist threats or acts, riot or other civil unrest; (d) government order or law; (e) actions, embargoes or blockades in effect on or after the date of this Agreement; (f) action by any governmental authority; (g) national or regional emergency; (h) strikes, labor stoppages or slowdowns or other industrial disturbances; and (i) shortage of adequate power or transportation facilities.