When a produce buyer is tendered a shipment of produce that allegedly fails to comply with the sales agreement—let’s say the buyer believes the product fails to make good arrival—the buyer must decide whether to accept or reject the shipment to the seller.
While this may seem straightforward, there’s more going on here than a newcomer might expect, and perhaps more than the veteran recalls. In this series of articles, we’ll discuss some common misconceptions and technical details that lurk below the surface when product is accepted or rejected.
At the outset, it’s important to understand that the decision whether to accept or reject a shipment is up to the buyer following an alleged breach. After receiving trouble notice from a buyer, the seller has no right to insist upon the return of the product.
Similarly, following a procedurally effective rejection, the seller has no right to refuse to accept the rejection; title to the product automatically reverts to the seller according to the Uniform Commercial Code (UCC), Sec. 2-401(4).
Of course, the opportunity for the parties to negotiate is always there, as discussed later, but these negotiations must be understood in light of the buyer’s right to unilaterally accept or reject.
Acceptance
Acceptance in this context does not mean the buyer accepts the product as satisfactory and agrees to pay the full invoice price. When defective produce is “accepted”—and particularly when trouble notice is sent to the seller, acceptance may be thought of as meaning “acceptance under protest” with the buyer retaining the opportunity to call for a U.S. Department of Agriculture (USDA) or Canadian Food Inspection Agency (CFIA) inspection to establish a breach of contract and resulting damages.
At the same time, however, the significance of acceptance should not be minimized. After accepting the product, the buyer is responsible for the full purchase price, less any damages it can show resulted from a breach of contract by the seller (see UCC Sec. 2-607(4)).
A buyer that accepts product, but then fails to establish a breach of the sales agreement by the seller—perhaps the inspection certificate does not conclusively establish a breach—is liable to the seller for the full invoice price of the shipment. Acceptance also precludes any subsequent unilateral rejection of the shipment.
Buyers accept produce with actions rather than words. Unloading any part of the shipment for any purpose other than inspection constitutes acceptance, as does diverting a shipment en route, or failing to reject within a reasonable timeframe, as defined by Perishable Agricultural Commodities Act (PACA) regulations and Fruit and Vegetable Dispute Resolution Corporation (DRC) standards, usually within eight hours.
Although buyers get to be the “decider” when it comes to accepting or rejecting, buyers may not decide to accept some portions of a shipment while rejecting others. A buyer that unilaterally decides to accept one of the three lots comprising the shipment while purportedly rejecting the other two, has in fact accepted the entire shipment.
Regulations are clear that shipments must be accepted or rejected as a “commercial unit” (PACA, 7 CFR 46.43(ii)) unless the seller specifically agrees to allow the buyer to reject a portion of the shipment. (Note that this all-or-nothing requirement applies between vendors but does not apply to rejections to carriers.)
When a produce buyer is tendered a shipment of produce that allegedly fails to comply with the sales agreement—let’s say the buyer believes the product fails to make good arrival—the buyer must decide whether to accept or reject the shipment to the seller.
While this may seem straightforward, there’s more going on here than a newcomer might expect, and perhaps more than the veteran recalls. In this series of articles, we’ll discuss some common misconceptions and technical details that lurk below the surface when product is accepted or rejected.
At the outset, it’s important to understand that the decision whether to accept or reject a shipment is up to the buyer following an alleged breach. After receiving trouble notice from a buyer, the seller has no right to insist upon the return of the product.
Similarly, following a procedurally effective rejection, the seller has no right to refuse to accept the rejection; title to the product automatically reverts to the seller according to the Uniform Commercial Code (UCC), Sec. 2-401(4).
Of course, the opportunity for the parties to negotiate is always there, as discussed later, but these negotiations must be understood in light of the buyer’s right to unilaterally accept or reject.
Acceptance
Acceptance in this context does not mean the buyer accepts the product as satisfactory and agrees to pay the full invoice price. When defective produce is “accepted”—and particularly when trouble notice is sent to the seller, acceptance may be thought of as meaning “acceptance under protest” with the buyer retaining the opportunity to call for a U.S. Department of Agriculture (USDA) or Canadian Food Inspection Agency (CFIA) inspection to establish a breach of contract and resulting damages.
At the same time, however, the significance of acceptance should not be minimized. After accepting the product, the buyer is responsible for the full purchase price, less any damages it can show resulted from a breach of contract by the seller (see UCC Sec. 2-607(4)).
A buyer that accepts product, but then fails to establish a breach of the sales agreement by the seller—perhaps the inspection certificate does not conclusively establish a breach—is liable to the seller for the full invoice price of the shipment. Acceptance also precludes any subsequent unilateral rejection of the shipment.
Buyers accept produce with actions rather than words. Unloading any part of the shipment for any purpose other than inspection constitutes acceptance, as does diverting a shipment en route, or failing to reject within a reasonable timeframe, as defined by Perishable Agricultural Commodities Act (PACA) regulations and Fruit and Vegetable Dispute Resolution Corporation (DRC) standards, usually within eight hours.
Although buyers get to be the “decider” when it comes to accepting or rejecting, buyers may not decide to accept some portions of a shipment while rejecting others. A buyer that unilaterally decides to accept one of the three lots comprising the shipment while purportedly rejecting the other two, has in fact accepted the entire shipment.
Regulations are clear that shipments must be accepted or rejected as a “commercial unit” (PACA, 7 CFR 46.43(ii)) unless the seller specifically agrees to allow the buyer to reject a portion of the shipment. (Note that this all-or-nothing requirement applies between vendors but does not apply to rejections to carriers.)
Doug Nelson is Vice President of Trading Assistance for Blue Book Services Inc.
