Whether you are establishing a sale or amending a sales contract, here are some helpful reminders to be aware of when using PAS (Price after Sale) sales terms. Afterall, PAS (also referred to as open price sale or open sale) does not establish a consignment or an agency relationship. With everything already agreed to but price, it is a straight buy-sale relationship. No detailed account of sales is required, and the buyer must pay the fair market value or a price mutually agreed to between the parties. It is not acceptable for a buyer to simply remit what they deem appropriate; there must be evidence that the remittance meets fair market value for the produce. Although not required, the buyer may choose to submit a detailed account of sales to demonstrate the value when negotiating the appropriate return with the shipper. Remember, just because an account of sales is not required, it could be the buyer’s best evidence of the fair market value.
As a word of caution, the term Price after Sale (PAS) is not defined by the Perishable Agricultural Commodities Act (PACA). The PACA therefore defers to the Uniform Commercial Code Sale of Goods that “parties can have a binding contract even if they never agreed to a price.” Sometimes when buyers or sellers have yet to discuss price, they may agree to negotiate a price later, or they may agree on a formula/standard to set the price at a later time. In each of these cases, the UCC states, "The price is a reasonable price at the time of delivery."
If the load arrives distressed or other quality issues are claimed at destination, the buyer needs to get the product federally inspected to prove it was substandard, which will also help to establish the fair market value. Without a federal inspection, the shipper is entitled to the fair market value for merchantable, quality product at time of delivery.
The trade guidance given to shippers, when it warrants amending sales contracts with buyers, is to not use PAS sales terms and rather find common ground to settle on a per unit price adjustment. If unsuccessful, the secondary option is to agree to consignment so you can receive a complete detailed account of sales from the buyer, enabling transparency to review all individual sale prices and related expenses. Always trust but verify; never accept a return from a buyer without supporting documentation, especially when handling and accounting for growers.
As defined by PACA, the following issues are all in play with a PAS contract:
- Buyer has all normal sales warranties
- Buyer may accept/reject based on usual protocols
- If parties cannot agree upon price, PACA will request the buyer’s account of sale, or if there is no account of sale, the USDA Market News Reports will be utilized to determine a reasonable market value.
If you find yourself in a situation like this or wish to explore your options on negotiating either PAS or consignment sales terms, please feel free to contact me to discuss your best course of action at 949.885.2392 or email@example.com.
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