What are a shipper’s rights when a buyer unloads and accepts their produce at the contract destination, but claims a breach of contract? It is imperative to remember these three facts:

1. Once accepted (most commonly by the act of unloading) by an act of control, the buyer loses the right to subsequently reject and/or demand the shipper remove the product.
2. The buyer must notify the shipper in a timely manner of a breach or may be barred from any contract adjustment and be required to remit the contract price.
3. The buyer has the burden and responsibility to establish a breach of contract.

Breach of Contract

It is important to understand that just because the buyer has accepted the produce and lost the right of rejection, it does not mean they have lost the right to recover monetary damages. The evidence of a breach can only be determined by a USDA inspection and the shipper must be provided with the certificate timely to ascertain if a breach exists. If a breach is determined by the shipper, the buyer may negotiate a new price with the shipper based on the condition of the goods accepted, or promptly resell the product and recover damages based on the difference between the gross sales and the value the goods would have had if they had been as warranted (as determined by relevant USDA Market News reports), plus other incidental expenses incurred, such as freight and the cost of the failed USDA inspection.

Notice of a Breach

Once accepted, the buyer must, within a reasonable time after the discovery of a breach, notify the seller of the breach or be barred from any remedy.

The purpose of the rule is to defeat commercial bad faith. For example, if you, as the shipper, are notified of a breach within a reasonable time, you have the opportunity to ascertain the nature and extent of the breach, or by requesting an appeal inspection if you disagree with any inspection already performed.

“Reasonable time” with respect to notice of a breach is not explicitly defined under the PACA, however, a buyer may reject a shipment by clearly and promptly notifying the seller of the intention to do so within eight hours of arrival for a truck shipment and within 24 hours of arrival for a rail shipment. It is of course always best to secure evidence, such as a USDA inspection, showing the produce did not conform with the contract requirements to justify the rejection. Any timeframes in excess of 24 hours, and certainly over 72 hours when weekends or holidays are involved, should not be considered timely notice and the shipper should therefore communicate that to their buyer, having a dialogue if the contract should be paid in full.

One misconception shippers often have is their right, or lack thereof, to remove or take back the product when the buyer properly notifies them of a problem. Once the title passes, the seller can only regain the product if the buyer agrees to release it or rejects the product.

A second misconception involves the buyer and sellers’ responsibility in handling rejected produce. Ultimately, whoever takes possession of the shipment must make every effort to sell the produce for a reasonable value in order to mitigate losses.

If you have questions about breaches of contract or anything related, please don’t hesitate to contact me at 949.885.2392 or [email protected].