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July 14, 2021

Shipper Steps to Take When Verifying a Potential Rejection

As a shipper, it is prudent to fully understand both your contractual obligations and your rights when handling a potential rejection. A shipment cannot be deemed rejected if it is either:

  1. Unloaded (except for the purpose of inspection); or
  2. Unilaterally diverted during transit

Under PACA law, both such actions constitute acts of acceptance. For proper cause, your buyer may reject a shipment by providing a prompt and proper notification to the shipper. The PACA defines timeliness in rejecting a shipment as:

  • If it is a truck shipment, the buyer has up to 10 hours after arrival at contract destination
  • If it is a rail shipment, within 24 hours of arrival at contract destination

For your customer to properly reject a shipment, there needs to be objective evidence of a breach of contract. The best practice is to secure that evidence through obtaining a federal USDA inspection, indicating the product did not meet contract specifications upon arrival. Remember, on an FOB sale it is the buyer’s burden to request a USDA inspection and prove a breach of contract, not the shipper’s.

I often receive inquiries from shippers asking if their product arrived at contract destination showing problems and the buyer is requesting to amend the original sales contract, can they (the shipper) take possession of the load and move it to another wholesaler or buyer that they feel can do a better job with the distressed product? The simple answer to that question is “no”. Once the product is sold to the buyer, it belongs to the buyer, and only if the buyer agrees to release it back to the shipper, can the shipper move the product elsewhere. That said, the buyer cannot unilaterally amend the contract as there must still be a mutual agreement reached by both parties to change the original sale.

The take-away is when product is rejected by a buyer back to the shipper, the shipper should immediately move the product to another buyer or wholesaler to minimize losses. If the shipper feels that the rejection was not a valid rejection, then he can place the buyer “on notice” that the rejection was wrongful. You must thoroughly document and memorialize the steps you are taking to mitigate damages. In order to mitigate losses, the product will then be moved to be sold for the account of whom it may concern. The shipper will look to the original buyer who rejected the product for any and all losses from the original sales contract.

If you require any assistance or have any questions regarding rejections and your shipper rights, please contact me at 949-885-2392 or [email protected].