January 5, 2017

What Are My Options If My Product Fails to Meet Contract?

By: Tom Oliveri

First and foremost, Happy New Year to you all!  May all your produce sales be profitable and the New Year find you in good health.

In researching a topic for this blog I was going through my retained phone notes for 2016 and found one matter that stuck out for me this past year. 

I received a call from a shipper who just had his product inspected by the USDA at contract destination.  Time and transit conditions were normal, however, the product failed to meet good arrival standards (Good Delivery).  The shipper indicated that his customer was not rejecting the product and the buyer was insisting on retaining the product even though there was a breach. The shipper wanted to know if he had the right to remove the product from the buyer because of the breach and locate a new customer to handle the product. Unfortunately for the shipper, based on PACA regulations, the original buyer has the right to accept and retain the product at its discretion and does not have to release the product to the shipper just because it failed to meet contract (Good Delivery). The shipper then asked about what his options would be to finalize a negotiated settlement, or would the buyer be in a position to pay whatever he wants?  The answer to that question is no! Just because there is a breach of contract with your buyer, it does not mean the buyer has carte blanche to remit whatever he or she deems reasonable.

So what are your options as a shipper in a situation like this? Below I have listed some options you may want to consider:

  • Try to offer an adjustment immediately and confirm it in writing. The old adage “your first loss is your best loss” often is the best path. This in my opinion is your best option.  However this cannot always be accomplished;
  • The next best option may be to authorize consignment handling of your product to the buyer, in which you are entitled to receive a detailed accounting, along with your net proceeds. (Account of sale)
  • The least acceptable option would be to allow your customer to handle your product on an Open or Price after Sale (PAS) basis. These are two undefined terms under the PACA regulations. These terminologies do not require a detailed account of sales. If you agree to Open or PAS, the buyer does not have to provide an account of sales to the shipper, and for this reason I believe this to be the least favorable option.

If you are unable to agree to any of the above options, and there is clearly no meeting of the minds, your customer is only entitled to provable damages, if any. So how are claimed damages calculated?  

There are a couple of formulas to consider when determining if any damages exist involving a breach of contract, and the appropriate formula will depend on whether or not the buyer is providing you with a full detailed account of sale or not.

If you are faced with a situation similar to that described above, or would simply like to know how to properly determine damages, please give me a call or send me an e-mail and I will respond and describe the process on a step-by-step basis.

If you have a question on an unrelated topic or wish to offer a subject for a future blog, please forward your questions or suggested topics to TommyO@wga.com.