Revisiting the basics: A Rejection

A buyer rejecting a shipment of produce to a seller should ensure the rejection is both procedurally effective and substantively rightful. Per PACA precedent, a rejection is procedurally effective (provided the shipment was not previously accepted) if the rejection is communicated in “clear and unmistakable terms” and if this communication occurs during a reasonable time.

Ironically, there is PACA precedent finding that a buyer that told the seller its product was “not acceptable” had failed to reject in clear and unmistakable terms. “Such words could merely be an expression of displeasure with the condition of the sweet potatoes” (38 Agric. Dec. 71 (1979)).

An example of clear and unmistakable terms would be, “We reject Load #1234 for excess condition defects.” Putting it in writing is, of course, recommended. Additionally, it’s important for distributors to remember that if product is rejected by the customer, then, if they wish to reject to the shipper, they need to separately reject the shipment.

A distributor that merely informs a shipper that the receiver rejected the shipment has not effectively rejected to the shipper. Accordingly, as between the distributor and the shipper, the shipment will be deemed accepted.

With respect to timeliness, PACA regulations (in essence adopted by DRC) describe in detail what constitutes a “reasonable time” for rejecting a shipment of produce (7 C.F.R. 46.2(cc)).

For example, a shipment of fresh produce (as opposed to frozen) transported by truck must be rejected within eight hours. Provisions are made, however, for shipments that arrive within two hours of the close of regular business hours, or when the receiver calls for but is unable to obtain an inspection certificate during this timeframe. More time is also provided for shipments transported by rail or boat.

In addition to procedural effectiveness, buyers should be certain their rejection is substantively rightful. A rejection is substantively rightful if the seller’s performance (i.e., its product) failed to comply with the sales agreement. Stated differently, a buyer cannot properly reject unless the seller breached the sales agreement.

However, and this is often misunderstood, the buyer is not required to obtain a government inspection certificate before rejecting. This may be a best practice, but it’s not a requirement.

The buyer may reject based on nothing more than its good faith belief that the seller breached. If, however, after the rejection the seller obtains an inspection certificate (or otherwise proves) there was, in fact, no breach of the sales agreement, the rejection will be deemed wrongful. And following a wrongful rejection, the buyer is responsible for compensating the seller for any losses not recovered by the seller’s reasonable and good faith efforts to mitigate losses.

Doug Nelson is Vice President of Trading Assistance for Blue Book Services Inc.