Date: Aug 07, 2013

As a shipper what rights and remedies do you have when your load of produce arrives at contract destination and fails to make good delivery guidelines? Under an FOB no grade contract, if your product fails to meet good arrival and transit time and temperature are normal, as the shipper, you have breached the contract. Based on this breach of contract, what are your options? 

  1. If the product is not rejected and is retained by the receiver; you can negotiate a price adjustment with the buyer and settle the file immediately (usually your best option), or 
     
  2. Allow the buyer to handle the product for your account on a consignment basis, or 
     
  3. Allow the buyer to sell the produce on a Price After Sale (PAS) basis with the final price to be determined after sales has been completed (note, in a PAS, an account of sales is not required, therefore the records of the buyer cannot be audited by the PACA, but can be if the product is handled on a consignment basis), or
     
  4. Advise the buyer to sell the product for the best advantage of both parties. The buyer would be entitled to reasonable damages due to the breach of contract. Damages would be calculated based on the USDA Market News Quote at the time of arrival when the inspection was secured. The average prevailing market quote is then compared against the actual gross sales made by the buyer and the difference between the market quote and the actual sales would be deducted from the original FOB sales contract. This will determine your fair and reasonable return. In the event that an account of sales is not supplied by the buyer, one would again utilize the USDA Market News Quote and deduct the percentage of condition defects against the USDA Market News average quoted price and subtract that amount (damages) from the original FOB invoice to determine a fair return back to the shipper.

Lastly, remember that if a buyer receives your product, gets it inspected, and there is a breach of contract, the buyer is not obligated to release the product back to your control. The buyer is allowed to keep the product since he/she bought the product FOB at origin. If he/she keeps the product, proof of damages from the breach of contract is still required. 

As always should you have any questions concerning what course of action to take, or calculating provable damages, please contact me at 949-885-2269 or tommyo@wga.com.

WG Staff Contact

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