The following summaries of precedent-setting reparation decisions issued under the Perishable Agricultural Commodities Act (PACA) are intended to help companies understand their rights and responsibilities under PACA. The key facts and core reasoning used to decide cases are presented.
TOPIC: COVER PURCHASES
Associated Produce Distributors
(Castroville, CA)
v.
Kurt Van Engel
Commission Company, Inc.
(Milwaukee, WI)
45 A.D. 383, decided February 10, 1986
Associated Produce Distributors (Associated) agreed to sell two truckloads of broccoli to Kurt Van Engel Commission Company, Inc. (Van Engel) at the same fixed price. After shipping the first load, Associated advised Van Engel it would probably be unable to ship the second load, and was allegedly advised that a cover purchase would be made if the second load was not shipped.
Associated then shipped a partial second load, and Van Engel proceeded to make a cover purchase without any further notice to Associated of its intent to do so. PACA explained that whether or not Van Engel notified Associated of its intent to make a cover purchase was immaterial, explaining, “[T]here is no such duty where, as here, there is a failure to ship produce which a shipper is contractually bound to ship… [Associated] should have known that [Van Engel] had a legal right to make cover purchases as a consequence of [Associated’s] failure.”
DNE Sales, Inc.
(Fort Pierce, FL)
v.
Richfood, Inc.
(Mechanicsville, VA)
50 A.D. 1037, decided June 7, 1991
DNE Sales, Inc. (DNE) contracted to supply Richfood, Inc. (Richfood) a specific quantity of peaches over a period of time. But about a week prior to the time when the shipments were to begin, DNE informed Richfood it would not be able to supply all the product called for in the contract. Richfood advised DNE that it might need to make a cover purchase if DNE could not provide all the peaches called for in the agreement. After shipment had begun under contract, Richfood made cover purchases without informing DNE until after the purchases were made.
PACA held that Richfood was not required to give notice of intent to cover unless it had taken some positive action (beyond simply making a cover purchase), which, in good faith, requires such notification.
The following summaries of precedent-setting reparation decisions issued under the Perishable Agricultural Commodities Act (PACA) are intended to help companies understand their rights and responsibilities under PACA. The key facts and core reasoning used to decide cases are presented.
TOPIC: COVER PURCHASES
Associated Produce Distributors
(Castroville, CA)
v.
Kurt Van Engel
Commission Company, Inc.
(Milwaukee, WI)
45 A.D. 383, decided February 10, 1986
Associated Produce Distributors (Associated) agreed to sell two truckloads of broccoli to Kurt Van Engel Commission Company, Inc. (Van Engel) at the same fixed price. After shipping the first load, Associated advised Van Engel it would probably be unable to ship the second load, and was allegedly advised that a cover purchase would be made if the second load was not shipped.
Associated then shipped a partial second load, and Van Engel proceeded to make a cover purchase without any further notice to Associated of its intent to do so. PACA explained that whether or not Van Engel notified Associated of its intent to make a cover purchase was immaterial, explaining, “[T]here is no such duty where, as here, there is a failure to ship produce which a shipper is contractually bound to ship… [Associated] should have known that [Van Engel] had a legal right to make cover purchases as a consequence of [Associated’s] failure.”
DNE Sales, Inc.
(Fort Pierce, FL)
v.
Richfood, Inc.
(Mechanicsville, VA)
50 A.D. 1037, decided June 7, 1991
DNE Sales, Inc. (DNE) contracted to supply Richfood, Inc. (Richfood) a specific quantity of peaches over a period of time. But about a week prior to the time when the shipments were to begin, DNE informed Richfood it would not be able to supply all the product called for in the contract. Richfood advised DNE that it might need to make a cover purchase if DNE could not provide all the peaches called for in the agreement. After shipment had begun under contract, Richfood made cover purchases without informing DNE until after the purchases were made.
PACA held that Richfood was not required to give notice of intent to cover unless it had taken some positive action (beyond simply making a cover purchase), which, in good faith, requires such notification.
R & R Produce, Inc.
(Philadelphia, PA)
v.
Fresh Unlimited, Inc.
(d/b/a Freshway Foods)
(Sidney, OH)
56 A.D. 997, decided April 30, 1997
R&R Produce, Inc. (R&R) agreed to ship five loads of bin lettuce per week to Fresh Unlimited, Inc. (Fresh Unlimited) for a period of one year. R&R, however, failed to ship the agreed upon quantity, and claimed, among other things, that because Fresh Unlimited failed to make timely payment for the initial shipments its obligations under the contract were excused.
PACA explained that Fresh Unlimited’s late payments did not excuse R&R from performance under the contract, but were grounds for insecurity justifying a formal demand for assurance from Fresh Unlimited, regarding its ability to pay for the contracted shipments. Furthermore, under UCC § 2-609(3), R&R’s right to demand assurance was not prejudiced by its delay in making the demand, and R&R was justified in withholding performance under the supply contract while it awaited a response to the demand for assurance (following Fresh Unlimited’s failure to respond to the demand).
This notwithstanding, PACA held that Fresh Unlimited was entitled to make purchases to cover for the loads R&R failed to ship prior to its demand for assurance, but not for cover purchases made after the demand for assurance.
Corona Fruit & Veggies, Inc.
Santa Maria, CA
v.
Produce Alliance LLC
Buffalo Grove, IL
Case #S-R-2009-428, decided July 12, 2011
Corona Fruit & Veggies, Inc. (Corona) sought to recover $4,941.00 in connection with two shipments of strawberries and mixed squash purchased by Produce Alliance LLC (Produce Alliance). Produce Alliance denied liability to Corona and alleged damages in the amount of $4,104.08 in connection with the straw-berry shipments.
Both parties made conflicting allegations concerning the contract destination for the subject load of strawberries and squash. Corona asserted that it believed the contract destination was Produce Alliance’s branch location in Salinas, CA and therefore had no obligation to provide product that would make “good arrival” in New York. Conversely, Produce Alliance claimed the agreed upon contract destination was Air Stream Foods in Oceanside, NY.
According to PACA, the preponderance of evidence favored Produce Alliance’s contention that Corona sold the product to Produce Alliance with the knowledge these commodities would be shipped to Oceanside, NY. The conclusion was supported by the fact Corona applied Tectrol to the strawberries and included a temperature recorder with the shipment.
It was reasoned by PACA that these steps are not normally taken for a short intrastate trip, but are essential for long hauls, such as the cross-country trip from California to New York, to preserve the quality of the product and monitor its environment during prolonged periods in transit.
Interestingly, even though PACA found a breach of contract had been established, it disallowed damages relating to Produce Alliance’s cover purchase following its acceptance of the distressed product. Revisions to the Uniform Commercial Code, according to PACA, compelled this change, which in effect limits an aggrieved buyer’s options when a distressed shipment arrives at its dock.
Produce Alliance’s total damages resulting from the breach of contract equaled $3,410.52. When this amount was deducted from the total contract price of both loads, the net amount due Corona from Produce Alliance equaled $1,530.48 plus interest and fees.
These summaries are not issued by the USDA, nor the PACA Branch, and should not be mistaken for an official government statement or release.
