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Produce Pointers

The Problem: Poor returns from a consignment sale.

The Key Point: A detailed account of sales reflecting a “prompt and proper” sale is required.

The Solution: Obtain an accounting, then consider your options. 

QUESTION:  We are a wholesaler distributor based in New Jersey.  We recently sold 800 cartons of pears from Washington state to an area customer.  The fruit was supposed to arrive “firm” but instead was “mostly ripe.”  As a result, we agreed to let our customer handle the product on consignment.  Unfortunately, our shipper will only agree to a $2.00 per carton price adjustment because the pears arrived without any quality or condition defects, and because we didn’t confirm “firm fruit” with the shipper—at least not in writing.  The returns we received from our customer are very poor, with more than 200 cartons dumped.  To date, no account of sales has been provided in support of our customer’s returns. What do you recommend?

A When product is sold on consignment the consignee is responsible for issuing a detailed account of sales to the consignor (you) reflecting a “prompt and proper” sale of the commodity. Specifically, PACA regulation (7 CFR 46.29) states—

All [PACA] licensees who accept produce for sale on consignment…are required to exercise reasonable care and diligence in disposing of the produce promptly and in a fair and reasonable manner… Complete and detailed records shall be prepared and maintained by all commission merchants…covering produce received, sales, quantities lost, dates and cost of repacking or reconditioning, unloading, handling, freight, demurrage or auction charges, and any other expenses which are deducted on the accounting… When rendering [an] account sales for produce handled for or on behalf of another, an accurate and itemized report of sales and expenses charged against the shipment shall be made.  It is a violation of Section 2 of the Act to fail to render true and correct accountings in connection with consignments…

If no detailed (i.e., carton level) account of sales is provided, the destination market price, as reported by the USDA’s Market News, may be imputed as the estimated market value of the product.  From this amount, a 15 percent commission (unless some other amount was agreed to), inspection fees, and freight expenses are deducted to arrive at the amount due.  If no relevant Market News report is available for the time, place, and commodity (or pack) in question, the original delivered cost of the product may be used as a substitute.

If a detailed accounting is provided, then the question becomes, “Does this accounting reflect a ‘prompt and proper’ sale of the product?”  PACA precedent favors consignees in this regard, expressing a reluctance to second-guess returns and holding that consignors generally bear the risk of their agent- consignees not having done a good job selling the product.

But consignors are not totally at the mercy of the consignee either.  First, although precedent suggests a reluctance to second-guess documented returns, ultimately the judge or arbitrator is responsible for deciding whether or not the product was sold in a “prompt and proper” manner.  Second, the fact that the pears were not showing any quality or condition defects upon arrival suggests this product should have retained significant commercial value.  If, for example, the accounting shows some of the pears sold for market-level or near market level prices, while others were sold for far less or dumped, it is possible the high-dollar sales would be deemed the best available evidence of the market value of the pears, and may therefore be applied to all 800 cartons.