Rejection by a Buyer
The below rules must be followed, or the rejection will be invalid.
- A buyer has a limited time to reject. For truck shipments of fresh product, eight (8) hours from arrival; for rail, 24 hours. If it is frozen product, the time is increased to 12 hours for truck shipments and 48 hours for rail shipments.
- A buyer must obtain a timely inspection showing a breach of contract.
- A buyer, who may want to reject, cannot unload the product, unless the buyer can show that unloading was the only way the load could have been inspected, and the buyer promptly reloads the produce.
- If an inspection cannot be obtained within the time required for a rejection, the buyer must notify the seller (preferably in writing) within the time for rejection, that an inspection is being taken. As soon as receiving a written or oral report of the results of the inspection, the buyer has two (2) hours to notify the seller of the rejection.
- The buyer’s notice of rejection to the seller must be in writing within the above time limits. The notice must be clear that the product is rejected. Words like, “There’s a problem” are not sufficient.
- The buyer must send the notice to the seller directly, not the broker, although the broker should be notified.
- Although good delivery standards vary a little from commodity to commodity, and depend on the distance travelled, generally a load can be rejected if it contains 3-5% decay or 15% overall condition defects on an FOB no-grade contract under PACA’s good delivery standards. However, it is good practice to contact either a PACA Regional Office or an attorney if a rejection is contemplated for additional advice after the inspection to make certain the load can be rejected.
- Once rejected, the load is the seller’s product, and it is up to the seller to dispose of the product. If a seller refuses to take responsibility for the load, the buyer must dispose of the load for the seller’s account in a reasonable fashion and render a prompt and proper accounting.
- The parties can enter into another agreement, after the rejection, so the product can be disposed of in the best manner possible for both parties. This new agreement should always be in writing. The best way to proceed is to agree on a new price in writing immediately. This avoids future disputes and settles the matter immediately. However, this cannot always be done, and often the parties agree that the buyer will handle the load on a price after sale (PAS) basis or on consignment. A PAS basis means the parties agree to set a price later, after the buyer sells the produce. Usually, the parties do agree on a price. However, if they do not, a reasonable price is set in a dispute resolution proceeding. The other way to proceed is to handle the product for the shipper’s account, which is a consignment. In a consignment sale, the buyer must keep a strict accounting of all sales and expenses and pay the seller the net proceeds.
- There are special rules for rejections of Mexican tomatoes, published by the U.S. Department of Commerce, due to minimum price requirements for Mexican tomatoes. The main difference from PACA rules are higher tolerances for defects which make it more difficult to reject Mexican tomatoes.