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  • Writer's pictureKaty Esquivel

RECOVERING LOSSES FROM POOR PRODUCT

Dear Ms. PACA:

I need your help. I purchased a pallet of Roma tomatoes from a shipper in Texas in July. Upon arrival, the decay was significant, and I contacted the shed about the issue. They requested a USDA. The inspection showed 65% damage, 62% serious. It was a dump situation. The salesman said it was a mis-ship and told me to dump the product.

I received the freight loss from the customer and advised the salesman of the total loss, including the USDA. The salesman received and confirmed the settlement. Since we did not have a balance with him to cover the loss, I asked the salesman if he wanted to write a check. He told me that we would make it up on other files because he doesn’t “cut checks to customers.”

During the rest of the summer and the fall, I didn’t get quotes from the salesman, because his season was winding down and my local season ramped up. Now, it’s the end of the year and Texas is ramping up again. The salesman is sending me quotes, but at higher than normal markets. This doesn’t allow me to recoup my loss on the file.

I would like to close this loss out before year end. What are my options on this situation?

-Aggravated in Arizona

Dear Aggravated:

Here, the seller, or shipper breached its contract to sell Roma tomatoes with you, the buyer. Generally, transactions for the purchase and sale of goods are governed by the Uniform Commercial Code, oftentimes referred to as the “UCC.”


REJECTION

First, kudos to you for quickly notifying the seller of the problem with the load. Under the UCC (§2-602 for those who wish to look it up), before a buyer can recover damages from the seller, it must first reject the goods “within a reasonable time” after delivery. But how long is a “reasonable time”? The PACA regulations tell us how long you have to notify the shipper of rejection. For fresh produce, it depends on the method of shipment:

  • If by truck, within 8 hours after you were notified of arrival and the load is accessible for inspection.

  • If by railcar, within 24 hours after you were notified of arrival and the car is in a location where the load is accessible for inspection.

  • If by boat, within 24 hours after you were notified on arrival, the produce is unloaded, and is made accessible for inspection

See 7 C.F.R. § 46.2(cc)(2). Since you complied with your obligation to reject within a reasonable time, you are entitled to recover damages from the seller for its breach of the Roma tomato contract with you.


DAMAGES

Under the UCC, when the seller breaches its contract by failing to deliver the condition and grade of Roma tomatoes called for by the contract, you are then entitled to recover the following items of damage:

UCC §2-711: Any amounts that the buyer may have already paid for the load, and

  • If the buyer buys substitute (or “cover”) goods, any additional money spent in covering, or

  • The difference between the contact price and the market price of the tomatoes at the place of arrival.

UCC §2-715

  • Incidental damages, such as expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected;

  • Consequential damages, which generally means any loss resulting from the seller’s breach that the seller knew (or reasonably should have known) about and that could not have been avoided.

Aggravated, you only mention damages from the freight bill that you were left with and the cost of the USDA inspection. Did you cover this load? Did it cost you more money? If so, you can add that additional expense to your list of damages. Even if you didn’t cover, you may be overlooking additional damages, in the form of the difference between the contract price and the price of the Romas at your customer’s location. I would encourage you to pull Market News Reports and see if there may be additional damages that you may be overlooking. If there are additional amounts, this may be the leverage that you need in negotiating a resolution of this issue with the shipper.


DEALING WITH THE SHIPPER

Armed with your list of damages, if I were in your shoes, I would start by trying to negotiate with the seller, and escalate the issue as necessary.


TRY AND MAKE A DEAL

Start by trying to work a deal with the shipper where you can deduct your loss from the load. Ask the shipper for some prices on commodities that you need. I might even try to deal with a different salesperson within the company; one who may not be familiar with this file. If the prices continue to be unreasonably high, see if you can get him to agree to reduce those prices with some quotes from his competitors. As I mentioned above, you may be able to gain some more bargaining power with him if you have additional damages under UCC §2-711. If I were in your shoes, I would also mention that you would have to get the USDA involved in a dispute where he has already admitted that


INVOLVE THE MANAGEMENT OF THE SELLER

If this is unsuccessful, I would send a letter to the upper management of the seller’s company explaining the situation, and demanding payment of the loss caused by the salesman. In offering this suggestion, I am assuming that the salesman is not part of this tier of company management. If you and your company buy considerable amounts from the seller, mention this. You have the salesman’s written confirmation of the damages that you seek, and a company “policy” of not paying customers does not impact the legal obligation to pay the damages that you sustained as a result of the breach of the contract.


FILE AN INFORMAL COMPLAINT WITH THE USDA

Finally, if all other efforts are unsuccessful, I would file an informal reparation complaint with the USDA. This must be done within 9 months of the transaction, and oftentimes, the simple act of filing the complaint prompts the other party to pay; particularly here, where the seller has acknowledged that it breached the contract.


Wishing you the best of luck in wrapping this up before the end of the year!

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