A broker negotiates a sale of produce between buyers and sellers. There are special rules for brokers under PACA.
Written Memorandum Required
A broker who negotiates a sale must prepare a written memorandum setting forth the terms of the sale and deliver it promptly to the buyer and seller. The memorandum must also state who hired the broker. If it does not, then it will be presumed the broker was hired by the buyer.
Duties after the Sale
A broker’s duties end after the sale is negotiated, except that a broker who receives notice of a breach of contract or of a rejection has a duty to convey that notice to the seller. If the broker does not do so, the broker may be liable for damages to the buyer if the buyer must pay the shipper because the shipper was not timely notified of the problem.
The broker is not obligated to perform other services if there is a later problem with the transaction, such as late delivery, nonpayment or condition problems. For example, a broker is not responsible for filing carrier claims or PACA complaints.
A broker is entitled to receive a fee after a sale contract is negotiated regardless of what happens afterwards, such as failure to deliver or a breach by the seller or buyer. However, a broker is only entitled to receive a fee from one of the parties to the transaction, unless the parties agree before the transaction to split the fee.
Responsibility for Payment of the Price
A broker is not responsible for assuring payment to a seller unless the broker specifically agrees to be responsible for payment. If a broker agrees to collect payment for the shipper, this does not obligate the broker to pay the seller if the buyer fails to pay. However, when a broker collects payment, the broker is required to submit an accounting setting forth all receipts and charges in connection with the sale.
A broker is not allowed to hire other brokers to sell the product unless he has the prior specific consent of the party paying the brokerage fee. This should be in writing to avoid disputes.
A broker is not allowed to purchase the product when the broker advises the seller that he is acting as a broker. Nor can a broker sell the product to another company that the broker controls.