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Turning Ordinary Trading Rules Upside Down

Price adjustments and the Tomato Suspension Agreement

#11 – The signatory and/or its agent, and any subsequent reseller, should maintain written documentation showing that, prior to invoicing, the buyer was informed and agreed (whether expressly or impliedly) that the terms of the Agreement would apply to the sale in question.

#12 – When selling Mexican tomatoes into Canada, the seller or its agent is obligated to inform the Canadian buyer that any resale of the product into the United States is subject to the Agreement. A form for providing this notice is available at the link immediately above.

Circumventing the Agreement
Those who may be inclined to circumvent the Agreement should know the DOC has identified the following practices as violations of the Agreement: (a) rebates, backbilling, and discounts for quality defects and other claims that bring the net price below the applicable floor price; (b) any act which has the effect of hiding the real price of the tomatoes, including bundling arrangements, swaps or exchanges, and financing packages; and (c) repeated filling of boxes beyond reasonable and customary variations in weight. And, in addition to these, the DOC adds as a catch-all, “Any other act or practice the [DOC] finds is in violation of this Agreement.”

“It’s also important for the industry to understand that certain violations of the Tomato Suspension Agreement are enforceable under PACA when reported to the Division,” says the USDA’s Gary Nefferdorf, acting PACA Division director. “If violations of the Agreement apply to PACA, the imposition of sanctions such as penalties, suspension, revocation, or findings of repeated and flagrant violations on a produce firm may occur.”

Conclusion
When a buyer and seller enter into a sales contract which incorporates the terms of the Tomato Suspension Agreement, many of the ordinary and familiar trading rules no longer apply. Minimum prices, partial rejections, rigid tolerances, the elimination of the warranty of merchantability, and the prohibition against selling defective product at any price, to name a few, fundamentally alter business as usual where Mexican tomatoes are concerned. As with any contract, a thorough review and understanding of its terms is essential.

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Doug Nelson is vice president of the Special Services department at Blue Book Services. Nelson previously worked as an investigator for the U.S. Department of Agriculture and as an attorney specializing in commercial litigation.