A Price after Sale is not a consignment or nor is there an agency relationship. It is a buy-sale relationship with everything already agreed to accept the price. Although no detailed account of sales is required, the buyer must pay the “fair market” value or a price mutual agree to between the parties. The buyer cannot just arbitrarily remit what he or she thinks is appropriate, there must be evidence that the remittance is fair market value for the produce. The buyer, however, may choose to submit a detailed account of sales (but is not required to do so) in an effort 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.
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: Parties can have a binding contract even if they never agreed to a price. UCC Section 2-305(1). This will be true, however, only if the parties intended to enter into a binding agreement. UCC Section 2-305(1). Sometimes when buyers or sellers haven’t yet discussed price, they may agree to negotiate a price later, or they may agree on a formula or 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." UCC Section 2-305(1). Note that the parties are bound to the price at the time of delivery. UCC Section 2-310(a). In the case of fluctuating prices, it could be very important whether the enforceable price was the market price at the time of the agreement or the market price at the time of later delivery.
If your product arrives distressed at destination the buyer needs to get the product inspected to prove it was substandard, which will help to establish the fair market value. Without an inspection, the shipper deserves the fair market value for good quality product at time of delivery.
In another example of PAS, if product arrives at destination and fails to meet contract specifications, and the buyer who originally bought the product at a set price, now wants to change the contract to PAS, what should you do as the shipper? Personally, I would not allow the contract to be changed to a PAS. I would endeavor to settle the contract on a per unit price adjustment immediately with the buyer. If unsuccessful, I would change the contract to a consignment so I could receive a complete detailed account of sales from the buyer, which should be totally transparent enabling you to review all individual sale prices and corresponding expenses. Please see my previous blog regarding “Price after Sale vs. Consignment.” Never accept a return from a buyer without supporting documentation. If you have growers, remember, you have to be able to fully account back to them and like any other instance you need documentation to support the return.
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, the 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 and wish to explore your options on negotiating either a PAS or consignment, please feel free to contact me to discuss your best course of action at 949-885-2269 or firstname.lastname@example.org.