Breaches by buyers operate similarly, and the corresponding Grain Trade Rule 28(B) (titled “Buyer’s Non-Performance”) mirrors 28(A).
Avoiding mixed signals
Once a decision is made to declare a breach and choose a remedy under Rule 28, it is important that a non-breaching party’s words and actions proceed in accordance with that remedy, and doesn’t confuse them with other remedies. In other words, after giving notice of a breach and an election to cancel a contract at market value, a party should avoid discussions or communications that that party may agree to accept a later, damaged or otherwise nonconforming delivery. Occasionally, a party will send correspondence intending to declare a breach and cancelling a contract at the close of the next day’s market; shortly followed by another email seeking confirmation from the other party as to whether a cancellation is acceptable. These types of discussions, often over email, look less like elections of contract remedies, and more like invitations to bargain. In other words, actions that convey uncertainty following a “declaration” can undo any positive effects the declaration had. It is often advisable to determine the best response, make the declaration, and stick with it.
Acceptance of nonconformity, such as agreeing to load a late vessel or agreeing to a discount schedule in order to account for damaged grain, may extinguish the legal claims related to the failed performance. Acceptance “under protest,” such as when a party declares it will “unload the train and seek damages for nonperformance later” has limited effectiveness here, absent an agreement by the parties that they will truly take up their issues later, because Grain Trade Rule 28 doesn’t allow a combination of remedies. Further, attempts to tack on extra damages following delivery and payment are rarely enforced. Such efforts may be considered to be unilateral modifications of contract terms, which are prohibited by most contracts — one party cannot change the pricing term after the fact.
Having a plan in place
The best approach to managing a counterparty’s less-than-stellar performance of a contract obligation depends greatly on your position in the trade and the type of nonperformance. Regardless of which side of a default you are on, the most valuable asset in managing default is flexibility. Being able to quickly divert nonconforming grain to an alternate market, or to quickly procure replacement grain from a trusted source can help to avoid costly re-routing of trains, trucks and barges.
As complications arise, it is advisable to involve your legal counsel in discussions at an early stage. The decisions you make upon learning of the breach may thwart your later efforts to collect damages for another party’s failure to comply with a contract, or may bind you to damages if you are the breaching party. Strategic advice from counsel may also help address situations where a nonbreaching counterparty overreaches or seeks to gain an undue advantage as a result of the nonconformity.
Todd Langel is an attorney with Faegre Baker Daniels. He focuses his practice on agricultural law and litigation, representing agribusinesses, in contract, product liability, and environmental litigation, as well as various commercial transactions. He is currently involved in litigation venued in multiple state and federal courts, as well as arbitration administered by the American Arbitration Association (AAA) and the National Grain and Feed Association (NGFA). Langel can be reached at Todd.Langel@FaegreBD.com.