The following case study is based on facts presented to Blue Book in connection with a claim filed earlier this year. This scenario is one that could surely keep the parties’ respective lawyers busy if it were to be decided formally. We will, however, describe how Blue Book, in attempting to mediate an informal resolution to this dispute, would approach the issues raised by the facts presented.
Facts
A distributor sold a truckload of strawberries to a major retailer in Salt Lake City on a delivered basis. Due to the carrier’s delay en route, the truck arrived 24 hours late, causing the retailer to reject the shipment. Following the rejection, the distributor sold the berries to an area wholesaler for $15 per case (compared to the original price of $34 per case) and seeks to recover its losses from the carrier.
The carrier does not dispute that it was late delivering the product or that it knew “time was of the essence,” but claims the distributor did not do a good enough job reselling the product. The distributor wonders if it would have been better off simply rejecting the product to the carrier following the retailer’s rejection, rather than reselling the product following the carrier’s breach.
Assessment
The first issue, from our perspective, is whether the retailer had a right to reject this shipment to the distributor. The Uniform Commercial Code (UCC), Sec.2-601, Buyer’s Rights on Improper Delivery, provides—“[I]f the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may reject…”
This is sometimes referred to as “the perfect tender rule” and is consistent with Perishable Agricultural Commodities Act (PACA) precedent recognizing a buyer’s right to reject for what the seller may consider to be a minor breach (e.g., wrong label).
Arguably, the perfect tender rule would support the retailer’s right (or any buyer’s right) to reject to the distributor, due to this one-day delay (keep in mind this was a delivered sale). The retailer’s right to reject to the distributor, however, does not necessarily mean the distributor has a corresponding right to reject to the carrier it hired.
It must be remembered that Article 2 of the Uniform Commercial Code (and therefore the perfect tender rule) only applies between buyers and sellers of goods. It does not apply between the distributor and the carrier. So, while the retailer may be able to properly reject the shipment, this does not necessarily mean that the distributor, in turn, can reject the shipment to the carrier.
The general rule from case law applicable to ‘common carriers’ clashes with the perfect tender rule where a delivered sale (as opposed to an f.o.b. sale) is concerned. It provides that there is a duty to accept damaged goods unless the goods are “totally worthless,” which, of course, the berries in question here were not. But was the carrier involved here a common carrier or a contract carrier?
