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PACA’s Point of View

Acceptance and rejection

To unload or not to unload
The Perishable Agricultural Commodities Act (PACA) Division of the U.S. Department of Agriculture (USDA) works to promote fair trade practices in the produce industry. Employees of PACA regularly receive inquiries from the trade about the acceptance or rejection of product showing problems upon arrival at its final destination. This article will cover a few common scenarios, giving you some insight about what to do when faced with the decision to accept or reject produce.

Employees of PACA are often asked: “If I unload the product, it belongs to me, right?” The answer is yes, but there are a few other clarifying points. When a load of produce arrives showing a problem with its quality or condition, the receiver has the right under PACA to reject the load, if it has not been unloaded from the carrier. However, the receiver should first obtain an official USDA inspection to verify the product does not meet the terms of the contract. If the product is unloaded from the truck or rail car, the receiver has lost his or her right to reject. Of course, if a portion of the load has been unloaded to make the product available for inspection, the right of rejection is not lost.

It is important to understand that losing the right of rejection does not mean the receiver has lost the right to recover losses resulting from the shipper’s failure to meet the agreed quality of the produce. The buyer may accept the load and establish the losses resulting from the breach of contract, or accept the product either with a negotiated price adjustment, or to handle the rejected load for the shipper’s account (this must be agreed to by the shipper). The buyer does, however, have the obligation to document the extent of the loss.

Anytime a receiver reworks the product for the shipper, it does so under strict PACA recordkeeping requirements. The buyer is expected to maintain complete records to establish the amount of product packed out, the amount lost, and the amount of labor that went into the repacking. If the receiver handles the load on consignment or sells the merchandise to establish damages, detailed records must be kept to clearly identify these sales from sales of similar product on hand at the same time. This means the ‘distressed’ product and all other similar product on hand should be assigned lot numbers, and those numbers should be entered on all sales tickets.

In all cases, whenever more than 5 percent of the product within a lot is dumped, the handler has the obligation to obtain an official certificate that shows the unmerchantable condition of the dumped product. If the shipper receives an accounting from a receiver that does not appear to reflect accurate or true figures, or which in the shipper’s opinion exaggerates the loss, it can request PACA verify the reported returns and expenses.

Dealing with rejection
Inspection fees, when used to determine a breach of contract, can be charged to the seller because the inspection would not have been necessary had the product arrived in good condition, so the expense for the inspection is thereby caused by the breach of contract.

The PACA statute says receivers must reject trouble loads within eight hours from the time a responsible representative is given notice of arrival and the product is made available for inspection.