Reparation Report: After buyer bows out

Doug Nelson

The following is a Perishable Agricultural Commodities Act (PACA) example of its ruling when a buyer reneges on a sale and how the seller may recover the resulting shortfall.

Washburn Potato Company
(Washburn, ME)
v.
Rex E. Sparks Produce
(Cedar Bluff, VA)

42 Agric. Dec. 955 (USDA 1983)

In October 1981 complainant Washburn Potato Company (Washburn), sold respondent Rex E. Sparks Produce (Sparks), by oral contract, five truckloads of seed potatoes at an f.o.b. price of $13,500. The potatoes were to be shipped between February 1, 1982 and March 15, 1982. In December 1981, however, Sparks indicated it no longer wanted the potatoes and would not sign a proffered written contract.

In March 1982, Washburn sent Sparks a letter stating that Washburn was awaiting shipping instructions for the five truckloads. The letter stated that if Sparks did not pick up the potatoes by March 15th, per the agreement, Washburn would sell the potatoes for Sparks’ account. Sparks responded by denying it had purchased the potatoes.

Faced with an impasse, Washburn resold the five truckloads on a delivered basis and with this complaint sought to recover the resulting shortfall of $1,650.

In its decision, PACA relied, in part, on a broker’s memorandum of sale issued in October 1981 to conclude that the parties had indeed entered into an agreement despite Sparks refusal to sign the written agreement. The proffered written agreement was described by PACA as “superfluous” given that a binding contract had already been formed.

Furthermore, PACA found that Sparks’ communications refusing to acknowledge the agreement amounted to a repudiation of the contract and constituted rejection without reasonable cause.

Given Sparks’ repudiation, PACA explained that Washburn had the option of either waiting for a commercially reasonable time for Sparks to pick the potatoes up or “immediately resorting to any remedy for breach of contact.” Citing to Sec. 2-610 of the Uniform Commercial Code, PACA concluded that Washburn acted lawfully in waiting until March before reselling the potatoes.

Lastly, PACA explained that when a buyer wrongfully rejects, the aggrieved seller may resell the product and recover damages. Finding Washburn’s resale of the potatoes to be adequate, PACA ordered Sparks to pay Washburn the $1,650 sought, plus interest.

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