PART ONE –
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.
PART TWO –
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.
PART ONE –
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.
PART TWO –
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.
In the case of a rail car shipment, the time period for rejection extends to 24 hours. Certain circumstances can extend these time periods for rejection; in the event an inspection cannot be made within the specified time period (due to weather conditions or the inability of the inspection service to perform the inspection so quickly), the buyer has two hours from the time the inspection is made and the results known to relay the rejection to the seller.
The buyer must, however, notify the seller that the inspection will be delayed beyond the respective eight or 24-hour period.
In order to be effective, a notice of rejection must be made to the seller of the product. Notice to a true broker, a party with no direct financial interest in the load, is not sufficient to declare that the buyer is rejecting the load. While most brokers will faithfully pass on a rejection to the seller, it is best to be certain as the rejection must be clear and unmistakable to be effective. Phrases such as “I can’t use product that looks like this” are not sufficient to establish the buyer is rejecting the load. Notice of rejection should, preferably, be made in writing, directly to the seller.
When a buyer rejects a load, whether justifiably or not, ownership of the product reverts back to the seller. This means that the seller has the obligation to place the load with another receiver in a timely manner to minimize the loss.
If the seller feels the rejection has been improper or unfair, it should take steps to notify the buyer that it is not accepting the rejection. The seller can then look to the buyer for the damages resulting from an improper rejection.
When the sale is “delivered,” and the buyer has not obtained an inspection, the shipper should obtain the inspection to show the product met contract terms. In fact, PACA recommends all sellers—whose product has been rejected without inspection by the buyer—be inspected. Damages from an improper rejection would be calculated as the difference between the original contract price and the price actually received from the sale. The seller can also recover additional freight charges and other expenses incurred as a result of the improper rejection.
Buyers who reject a load with good reason are entitled to buy a replacement load unless they have entered into a “no replacement” contract with the seller. They can buy against the contract if they reject a shipment that arrives in poor enough condition to show a breach on the part of the seller.
The measure of damages, chargeable against the seller, would be the difference between the invoice value of the original shipment and the price the buyer must pay to obtain a replacement load of the same type, size, and quality of product. Buying 5×6 sized tomatoes to replace a load of 6×7 tomatoes will probably not result in a finding of damages in the buyer’s favor. The replacement purchase must be made quickly and should represent as closely as possible the original market.
PART THREE –
Mixed results
As a general rule, a load of produce must be accepted or rejected as a whole. This is the case even when more than one commercial unit is defined, as all produce is delivered under a single contract and commercial units must be accepted or rejected in their entirety.
For instance, one formal decision handed down by the USDA stated that a load consisting of several sizes of tomatoes represented a single commercial unit for purposes of rejection. The decision also stated that when several sizes of similar product are inspected separately, the defects must be averaged over the entire load to determine whether the shipper has breached the contract.
About the only circumstance when a receiver can legally reject a portion of a load is if each portion comes from a different shipper and is separately manifested (or under the Tomato Suspension Agreement).
As a shipper, there is some recourse if a receiver accepts a portion of the load and rejects the balance. The shipper should immediately notify the original receiver that it is not accepting the improper rejection and will hold the receiver liable for any damages.
The shipper should then sell the load to minimize losses and is entitled to any expenses incurred in moving the load plus any other provable damages resulting from the partial rejection.
Buyers who divert produce to a new destination lose the right of rejection. Diversion is considered an act of dominion over the product, constituting acceptance. This does not mean, however, that the receiver cannot have an inspection at the new destination, prove a breach of contract, and collect damages.
If the original destination and the new customer are located roughly equidistant from the shipper, the warranty of suitable shipping condition would still apply and the product would have to arrive in acceptable condition.
But if, for example, the buyer diverts a load of California produce with an original destination of St. Louis, Missouri to New York, New York, the buyer has not only lost the right of rejection, but has likely lost all recourse if the product arrives in bad condition, since the shipper only promised good arrival to a much closer destination.
All of this information was provided to help make tough decisions when it comes to accepting or rejecting deliveries of produce. Remember that PACA is your partner in the produce industry; if you have other questions, please contact the PACA Division at (800) 495-7222.
