Rejected loads and ownership

    Seller not responding to rejections

    The Problem: Seller not responding to rejections.
    The Key Point: Title to the product automatically reverts to the seller following an effective rejection.
    The Solution: Persistent and clear written communication.

    QUESTION: We are a distributor based in the Midwest. We’re looking to tighten our procedures for handling rejections. Specifically, we’re having problems with one of our shippers refusing to take ownership of rejected loads. When we call or email [about] the rejection, there are times when we can’t get anyone to take our call or respond to our email. In the meantime, we have the truck we hired looking to us for instructions on where to take the load. What is the recommended approach in this situation?

    ANSWER:
    Before discussing the approach we would recommend, it may be helpful to review some fundamental points regarding rejections.

    First, when a buyer “effectively” rejects a shipment, title to the product automatically reverts to the seller; therefore, following an effective rejection, the seller cannot refuse to take ownership of the product, even if the seller does not believe the product failed to comply with the sales agreement.

    An effective rejection, per PACA precedent, is one in which the seller is notified of the rejection in “clear and unmistakable” terms within the timeframe specified by PACA regulation and DRC Trading Standards (e.g., eight hours when a motor carrier tenders delivery with more than two hours remaining during the receiver’s normal operating hours), and before any act of acceptance, such as unloading or diverting the shipment to a different location.

    Of course, an effective rejection may also be a wrongful rejection. That is, the buyer’s rejection may satisfy the requirements for an effective rejection, and therefore cause title to revert to the seller, even when the seller’s product complied with the sales agreement.

    When a shipment is wrongfully rejected to the seller, the seller’s recourse (assuming it cannot convince the buyer to reconsider) is to mitigate losses by reselling the product (using reasonable and good faith efforts) and then to recover any shortfall, plus any inspection or redelivery fees incurred, from the buyer.

    With this as background, in situations where product purchased on an f.o.b. basis is effectively rejected, and yet the seller refuses to acknowledge its ownership of the shipment or instruct the carrier as to where it should take the shipment, we offer the following recommendations.

    First, we would recommend documenting repeated communications, by every available means, with the seller (contacting multiple personnel if necessary) over a period of several business hours asking, “Where do you want the carrier to take this shipment?” and notifying the seller that you will be looking to recoup any detention fees charged by the carrier hired as a result of the seller’s delay in moving this product. We would expect this alone to resolve the issue in most cases.

    If, however, the seller remains unresponsive or otherwise refuses to instruct the carrier where to move the product, at some point (which would vary depending on circumstances), we would suggest sending a “Final Notice” to the seller explaining that it appears the seller has abandoned the load, and if it will not instruct the carrier on what to do with the shipment within the next eight (8) hours (for example), then the product will be sent to a third party willing to handle the product for the seller’s account, or, if no consignee can be found, placed in cold storage at the seller’s expense.

    Your questions? Yes, send them in. Legal answers? No, industry knowledgeable answers. If you have questions or would like further information, email tradingassist@bluebookservices.com.


    Doug Nelson is vice president of the Special Services department at Blue Book Services. Nelson previously worked as an investigator for the U.S. Department of Agriculture and as an attorney specializing in commercial litigation.