Although the grapes were sold from the Shipper to the Retailer on a FOB basis and consequently, the Retailer, not the Distributor, hired the Truck Broker, both parties agree, in essence, that per their respective agreements with the Retailer, following a rejection, the Shipper and the Truck Broker are responsible for allocating responsibility for any losses between one another, without seeking payment from the Retailer.
Following the rejection, in view of this agreement, the Retailer did not pay the Shipper for the grapes, or the Truck Broker for its freight; instead, the Shipper and the Truck Broker looked to one another for payment.
Assessment
In our experience, this type of agreement—whereby retailers purchase product on a FOB basis, but following a rejection “wash their hands” of any disputes with suppliers and/or transportation providers by requiring they allocate responsibility between one another—tends to work well for all interested parties in most cases.
In our view, however, this approach presumes two things: first, that at least one of the parties breached its agreement with the Retailer; and second, that the Retailer will provide the basic information needed to allow the supplier and transportation firm to determine responsibility between one another.
In other words, we do not interpret agreements of this kind as allowing a retailer to reject shipments in the absence of a breach by at least one of the parties, or without providing the basic information needed to allocate responsibly between the parties.
Fundamentally, a contract is a promise made in exchange for a promise: for example, “We will provide (or transport) grapes in exchange for your promise to pay us for our produce (or service).” If, however, the retailer can reject without establishing a breach, and without providing supporting documentation, then, in effect, the seller and transportation firm have promised to perform, while the retailer has promised nothing.
We do not understand or interpret agreements of this kind to allow retailers to operate outside the bounds of fundamental contracting principles. Therefore, at the outset, we ask, does the documentation provided show that the Shipper or the Truck Broker failed to perform to industry standards, or otherwise breached their respective contracts with the Retailer?
With respect to the question of whether the Shipper breached, we look first to the USDA inspection certificate, which shows the grapes were within the U.S. No. 1 Table grade standard, and well within PACA Good Arrival Guidelines.
