The Key Point: The buyer has no right to reject when purchasing on an “f.o.b. acceptance” basis.
The Solution: Understand the sales term “f.o.b. acceptance” and the similar sounding, but very different term, “f.o.b. acceptance final.”
QUESTION We are an importer based in McAllen. We are currently negotiating a sale with a customer we have had some issues with in the past. What is the sales term that prohibits the buyer from rejecting the load?
ANSWER The term “f.o.b. acceptance” is defined by PACA regulation and would prohibit your customer from rejecting the shipment. Specifically, 7 C.F.R. 46.42(l), provides—
“F.o.b. acceptance” . . . means that the buyer accepts the produce at shipping point and has no right of rejection. The buyer has recourse against the seller if the produce was not in suitable shipping condition … or has recourse for a material breach of contract, providing the shipment is not rejected. The buyer’s remedy under this method of purchase is by recovery of damages from the seller and not by rejection.
In other words, when produce is sold under this term, your customer loses the right to reject a shipment that fails to comply with the sales agreement (e.g., fails to make good arrival, or is the wrong size, pack, or label). After receiving and therefore accepting the product, however, your customer retains the right to any damages it can show resulted from a breach of the sales agreement.
So, if your customer can show, for example, that the product failed to make good arrival (with a timely USDA or Canadian Food Inspection Agency inspection certificate), and provides a detailed account of sales supporting its damages, then your customer would have grounds for deducting its losses from your invoice.
This term can be especially useful when the shipment involves multiple deliveries to different customers, because it avoids a situation where receiver #1 delays the delivery to all subsequent destinations when exercising its right to call for an inspection prior to rejecting. If the receiver has no right to reject, then it usually has no reason to detain the truck while waiting for the inspection. We say “usually” because there are instances when getting the product inspected while it is still loaded on the truck may be needed to prove a breach of the sales agreement.
If, for example, the commodity is not labeled and the seller may question whether the product is really theirs, and not week-old product from another shipper, then even when the product was sold on an “f.o.b. acceptance” basis the buyer may have reason to detain the truck while awaiting inspection.
Buyers considering purchases on an “f.o.b. acceptance” basis should be aware that for some material breaches (e.g., wrong label, wrong size, and/or pack) it may be difficult or impossible to prove damages after accepting the product. Having given up the right to reject, the buyer of product on an “f.o.b. acceptance” basis may be stuck with product it did not order, and yet be left without recourse against the seller.
Lastly, please note that there is a similar sounding term, “f.o.b. acceptance final” (defined at 7 C.F.R. 46.43(m)) that is actually very different from “f.o.b. acceptance.” When produce is sold on an “f.o.b. acceptance final” basis, not only is the buyer prohibited from rejecting the product, but the warranty of suitable shipping condition does not apply. This term heavily favors the seller, and will rarely be knowingly agreed to by buyers.
Your questions? Yes, send them in. Legal answers? No, industry knowledgeable answers. If you have questions or would like further information, email email@example.com.