We recently encountered a situation in which a seller sold to a buyer a shipment of blueberries that failed to meet the specifications stated in the parties' sales contract. When notified of the poor condition of the blueberries upon arrival, the seller told the buyer to "let me know of the expected return." The buyer interpreted this statement to mean that the seller authorized the buyer to handle the blueberries on its account. Based upon this interpretation, the buyer proceeded to sell the blueberries to its customer, provided the seller with an account of sale, and, after deducting its commissions and costs from the gross proceeds, remitted to the seller the net proceeds, which was significantly less than the invoice price for the blueberries. Upon receipt of the payment, the seller returned the payment and demanded full payment of the invoice price, claiming it never agreed to modify the terms of the transaction from a sale to a consignment.
This factual scenario presents several worthwhile issues to discuss. For the purpose of this article, however, we only address the issue of whether the seller's statement of "let me know of the expected return" modified the parties' contract from a sale to consignment and provided permission for the buyer to handle the blueberries on consignment for the seller's account. Our opinion is no.
Starting back to at least the 1960s, the USDA in PACA decisions has set forth a heightened standard for a buyer to prove that a seller modified the transactions terms from a sale to consignment. The reason for this standard is because changing the terms from a sale to a consignment has significant
legal ramifications for the parties under the PACA statute and regulations, which we will discuss in more detail in future articles. For the time being, to prove a modification, the evidence presented in the case must demonstrate a definite and unequivocal authorization by the seller for the buyer to sell the product on consignment on its account.
Examples of language that the USDA has found insufficient to prove a modification of the contract terms to a consignment are:
- "Work out the load" or "Sell the product and we will settle at a later date."
- "Do the best you can."
- "The buyer should work it out."
- "Handle best possible" or "handle to best advantage."
- "Handle" or "open."
- Buyer "should keep the shipment, [and] do with it what respondent could . . ."
- "Customer will keep + Work Out."
In each of these examples, the USDA found that the language was not sufficiently specific to constitute an authorization that the buyer could handle the produce on consignment, did not constitute permission to handle on consignment, or did not signify an agreement that the load could be handled on consignment. In contrast, the USDA held the seller's language that the buyer can "handle for our account" met its standard of proving that the seller agreed for the buyer to handle the produce on consignment.
Turning to the example in the opening paragraph,the language "expected return" read in isolation has many meanings. The term "expected return" could have been used in context to mean what the market was bearing for blueberries. On the other hand, one may interpret the language as meaning the proceeds the seller will receive after accounting for the buyer's commission and costs associated with the resale of the blueberries. Because of the ambiguity of the language, our opinion is that "expected return" does not lead to an express conclusion that the seller agreed to modify the sales contract. Our opinion is also that such language falls short of the USDA's clean and unambiguous language standard for proving authorization by the seller for the buyer to handle the blueberries on consignment.
In conclusion, the party claiming a modification to the original contract has the burden of proving it. Therefore, that party should always take the necessary steps to document the modification in writing; thereby avoiding potential issues as to whether the transaction terms were modified from a sale to a consignment.