What is the process for entering into forward contracts or making spot deliveries of Canadian grain into U.S. grain facilities?
Unless deposited for storage, grain generally enters the U.S. grain system under contracts that specify the delivery period, either spot or deferred. In the U.S., like Canada a verbal agreement is considered an enforceable contract, however, in most cases a written confirmation will be forwarded to the producer to be signed.
Sellers of grain produced in Canada wishing to deliver to a grain facility in the U.S. are advised to contact the company prior to delivery to obtain the information necessary to conclude a commercial transaction.
Terms for purchase contracts are sometimes subject to the rules of the applicable licensing authority.
Many grain facilities in the U.S. use the National Grain & Feed Association (NGFA) Grain Trade Rules and arbitration. Adopted in 1902, these rules govern most transactions of a financial, mercantile or commercial nature involving grain in the U.S. Members of the NGFA are obligated to abide by the rules and arbitration in transactions with other NGFA members. Increasingly, NGFA members reference the NGFA’s Trade Rules and Arbitration Rules in contracts with firms located in Mexico and Canada. In addition, Canadian and Mexican firms that become NGFA Associate/Trading members are expressly permitted to reference the NGFA’s Trade Rules and/or Arbitration Rules in their contracts, or otherwise consent to have the NGFA’s rules apply. However, before referencing the rules in cross-border trade NGFA cautions users that it is advisable to consult competent legal counsel and review international treaties that govern such transactions.
You can review these provisions and the other four sets of trade rules (barge rules, barge affreightment rules, feed rules and rail arbitration rules) promulgated by NGFA at www.ngfa.org/rules-arbitration.cfm.
Please note that while many of the contracts used to buy and sell grain include clauses under which buyer and seller agree to comply with the U.S. and Canadian regulatory prerequisites applicable to the contract, the grain buying and selling is an environment under which grain is essentially traded with an “implied warranty of merchantability” meaning the grain being sold is subject to a warranty implied by law that goods are reasonably fit for the general purpose for which they are sold. In international sales law, merchantability forms part of the ordinary purpose of the goods. According to Article 35(2)(a) of the United Nations Convention on Contracts for the International Sale of Goods, a seller must provide goods fit for their ordinary purpose.
In the United States, this obligation is in Article 2 of the Uniform Commercial Code (UCC). This warranty will apply to a merchant (that is, a person who makes an occupation of selling things) who regularly deals in the type of merchandise sold. Under U.S. law, goods are ‘merchantable’ if they meet the following conditions: The goods must conform to the standards of the trade as applicable to the contract for sale. They must be fit for the purposes such goods are ordinarily used, even if the buyer ordered them for use otherwise. They must be uniform as to quality and quantity, within tolerances of the contract for sale. They must be packed and labeled per the contract for sale. They must meet the specifications on the package labels, even if not so specified by the contract for sale.
If the merchandise is sold with an express “guarantee”, the terms of the implied warranty of merchantability will fill the gaps left by that guarantee. If the terms of the express guarantee are not specified, they will be considered to be the terms of the implied warranty of merchantability. The UCC allows sellers to disclaim the implied warranty of merchantability, provided the disclaimer is made conspicuously and the disclaimer explicitly uses the term “merchantability” in the disclaimer. Some states, however, have implemented the UCC such that this cannot be disclaimed.