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Merchantability – The Other Warranty

Headshot of Doug Nelson, Produce Blue Book's Vice President of trading assistance.

The warranty of merchantability usually finds itself in the shadow of the warranty of suitable shipping condition (i.e., the warranty whereby sellers promise that their product will make good arrival).  But the food safety outbreaks in 2018 brought a fair amount of attention to this lesser-known warranty.

The warranty of merchantability is the seller’s promise that its product will “pass without objection in the trade” and is “fit for the ordinary purposes for which such goods are used.”  This promise is implied and applies to sales between merchants unless specifically excluded with language such as “as is” or “with all its faults.”  (See Uniform Commercial Code Sec. 2-314)

In the aftermath of the 2006 spinach crises, the PACA published an article that, in essence, stated that produce may be considered unmerchantable once a food safety advisory is issued, and that whichever party holds title to the product at the time a food safety advisory is issued bears the risk of loss.  So, if the product is sold on an F.O.B. shipping point basis, the buyer bears the risk of an advisory issued after the product is loaded. Conversely, if the product is sold on a delivered basis, the seller bears the risk until title transfers at contract destination.  Of course, in either case, if the product is ultimately recalled the buyer would be entitled to compensation.

But it is important to recognize that this warranty has fundamental applications apart from food safety advisories.

For example, when product is sold without a grade (e.g., U.S. #1), quality defects (known as permanent defects in Canada) such as scarring, are not scored against the warranty of suitable shipping condition.  So, it may come as a surprise to some to learn that an inspection certificate showing 5% average condition defects and 50% quality defects, for a checksum of 55% would not establish that the product failed to make good arrival—in fact, this inspection certificate would show that the product complied with the warranty of suitable shipping condition with just 5% average condition defects.

But what about the warranty of merchantability?  Would this product “pass without objection in the trade”?  Is it “fit for the ordinary purposes for which such goods are used”?

PACA precedent provides that a buyer may be able to establish a breach of the warranty of merchantability when approximately one-third or more of a shipment of produce is affected with defects at shipping point.   Martori Bros. Distributors v. Olympic Wholesale Produce & Foods, Inc., 53 Agric. Dec. 887 (1994) (holding that broccoli affected with 37% hollow stem failed to comply with the warranty of merchantability).

So, in the above example, given that quality defects (by definition) do not get worse over time, the inspection certificate would likely establish that the seller breached the sales agreement by failing to comply with the warranty of merchantability.

And once the buyer establishes a breach of the sales agreement, it doesn’t really matter whether the seller breached the warranty of suitable shipping condition or the warranty of merchantability.  Either way the same remedies apply.  The buyer may reject the shipment or accept and claim resulting damages against the seller.






Doug Nelson is the Vice President of Trading Assistance for Blue Book Services.