What are my options when a shipment fails to meet contract and the buyer wants to retain the load, but after negotiations is unwilling to renegotiate the original sales contract?
First, consistent with the PACA Regulations, the buyer has a right to keep the product even if there is a documented breach of contract on an FOB transaction. The shipper can only take possession of the shipment with the buyer’s consent.
When your load arrives at contract destination and a USDA inspection indicates the produce fails to meet contract specifications, I would recommend that you first attempt to negotiate a reasonable adjustment. As a starting point, you may want to consider an adjustment based on the amount of condition defects detailed on the USDA inspection. As an alternative, you may ultimately decide to offer your buyer the option to handle your produce on a consignment basis. If your buyer will not accept either of these proposed alternatives, what are your next steps?
Just because you have breach of contract with your buyer, it does not mean the buyer has carte blanche to return to you whatever he or she feels like. If you are unable to agree on amending the original contract 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.
As a lynchpin to establishing damages, we will need to rely on the representative prices of the commodity in question, as reported from the Federal State Market News. Rather than go into a complicated formula here, the purpose of this blog is just to make sure you are aware that you do have options on a problem contract, and that you are not forced to simply accept a unilateral return from your buyer.
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 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, and I will attempt to incorporate the topic into an upcoming blog.