April 15, 2004
The following article is provided by the North Dakota Dakota Public Service Commission.
Purchase contracts are marketing options that many bean buyers make available to farmers. While these agreements may provide farmers with certain benefits, there are also risks associated with them. Farmers must understand the pros and cons of these contracts so they have a full understanding of what they are agreeing to and a willingness to accept the risks involved.
An important point to understand concerning purchase contracts is the fact that these agreements are civil matters. If a dispute arises concerning these agreements, it will not be settled by asking the North Dakota Public Service Commission (PSC), the warehouse licensing authority, to resolve the matter. The PSC cannot resolve contractual disputes. If the parties to the agreement cannot resolve the dispute, they will have to go to court.
Some purchase contracts are structured to require the delivery of the crop and for staged payments over several months after delivery. In situations such as this, title to the beans typically passes to the buyer upon delivery.
In North Dakota the portion of the beans that is paid for within 30 days of delivery is considered a cash transaction. It is important to recognize, however, that the portion of the transaction involving payment more than 30 days after delivery or release of the grain for sale is considered a credit-sale.
Delayed price and deferred payment contracts are two common forms of credit-sale contracts.
North Dakota law requires that credit-sale contracts contain language that says that the contract is not protected by bond coverage in case of buyer insolvency. Although there may not be bond protection for those entering into credit-sale contracts, a fund was created by the 2003 Legislature that provides protection for unpaid credit-sale contracts executed after Aug. 1, 2003 in grain elevator or grain buyer insolvencies. Each patrons coverage is limited to 80% of the patrons unpaid credit-sale contract with the insolvent buyer, up to a maximum of $280,000. Money in the fund will come from a 0.2% assessment on all credit-sale contracts.
Farmers must recognize the risks associated with purchase or credit-sale contracts. If they cannot accept or afford the risk, they should not enter into the agreement.
To obtain more information on the credit-sale contract indemnity fund, visit the PSCs web site at www.psc.state.nd.us or call (701) 328-4097.