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Schuman Co. v. Nelson

decided: February 14, 1955.


Author: Kalodner

Before McLAUGHLIN, KALODNER and HASTIE, Circuit Judges.

KALODNER, Circuit Judge.

Where the terms of shipment are "f.o.b. acceptance final" is a buyer denied the right to reject such shipment for a breach of contract not relating to the quality or condition of the goods, in a reparations proceeding instituted by the seller before the United States Department of Agriculture ("Department") under the Perishable Agricultural Commodities Act, 7 U.S.C.A. ยง 499f?*fn1

That is the primary issue presented by this appeal from the judgment of the United States District Court for the Western District of Pennsylvania sustaining an award made by the Department.

The seller originally filed a complaint against the buyers before the Department for reparations following their rejection of a shipment of goods. The buyers contended that they were relieved of the obligation to accept the shipment because the seller had committed a material breach of contract in that it had changed the contract with respect to the terms of shipment. The Secretary of Agriculture awarded $715.20, the full purchase price of the goods,*fn2 with interest to the seller, holding that by the terms of the contract the buyers had given up their right to reject. The District Court in a trial de novo*fn3 without jury made a similar ruling and entered judgment for the seller.

The undisputed*fn4 facts are as follows:

On or about August 20, 1948, in the course of interstate commerce the parties executed a contract providing for the sale and delivery of a carload of lettuce. Terms of shipment were "f.o.b. acceptance final", the goods to be billed "open" to Johnstown, Pennsylvania. On the same day the seller notified the buyers that the car, then in transit, had been diverted to Johnstown, Pennsylvania and billed "advise." The following day, or two days prior to the arrival of the car at destination, the buyers wired the seller that as a result of the change in billing they considered the contract cancelled. This suit by the seller followed.

By Section 2(2) of the Act*fn5 it is declared unlawful for any dealer to reject without reasonable cause any perishable commodity bought or sold in interstate commerce. A remedy is provided the seller for such rejection in addition to those allowed by statute or the common law.*fn6 Section 15 of the Act*fn7 empowers the Secretary of Agriculture to issue rules and regulations necessary to carry out the provisions of Section 2(2). Acting under this latter Section, the Secretary has defined "rejection without reasonable cause" to mean "the act of any person, who has purchased * * * produce in commerce * * * (2) of advising the seller or shipper or his agent that such produce will not be received in accordance with the contract or offer * * *" 7 Code of Federal Regulations, Section 46.2(q). If the buyers' rejection was a refusal to receive "in accordance with the contract" it was not for reasonable cause and therefore the sanctions of the act would become operative.

In determining whether the buyers refused to receive in accordance with the contract we must preliminarily consider the term "f.o.b. acceptance final." The Regulations provide definitions of terms that are commonly used in contracts involving perishable commodities.

"Section 46.24 Terms construed. Unless otherwise defined, the following terms when included in a contract or communication involved in any investigation made or hearing held pursuant to the act shall be construed, respectively, as follows:"

The full meaning of the term "f.o.b. acceptance final" is dependent upon a construction of the following definitions:

"(i) 'F.o.b.' * * * means that the produce quoted or sold is to be placed free on board the boat, car, or other agency of the through land transportation at shipping point, in suitable shipping condition * * * and that the buyer assumes all risk of damage and delay in transit not caused by the shipper, irrespective of how the shipment is billed. The buyer shall have the right of inspection at destination before the goods are paid for, but only for the purpose of determining that the produce shipped complied with the terms of the contract or order at time of shipment, subject to the provisions covering suitable shipping condition. Such right of inspection shall not convey or imply any right of rejection by the buyer because of any loss, damage, deterioration, or change which has occurred in transit."

"(l) 'F.o.b. acceptance' means the same as 'f.o.b.', except that the buyer assumes full responsibility for the goods at shipping point and has no right of rejection on arrival, nor has he any recourse against the shipper because of any change in condition of the produce in transit, unless the produce when shipped was not in suitable shipping condition * * * The buyer's remedy under this method of purchase is by recovery of damages from the shipper and not by rejection of the shipment."

"(m) 'F.o.b. acceptance final' means that the buyer accepts the produce f.o.b. cars at shipping ...

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