[Editor’s Note: Nobody wants to send out substandard produce, but face it, it happens. This month, SPW Legal Editor Tiffany Comprés, who practices with the renowned international produce trade law firm, Sandler, Travis & Rosenberg, P.A in Miami, writes about how distributors and other receivers can handle bad shipments. In September, look for Part 2, which will talk about the grower’s rights in instances like this.]
If you receive a damaged shipment or a shipment that is otherwise not in the condition promised, you must act very quickly. Due to the perishable nature of the products, the evidence you will need is evanescent and becomes less persuasive the longer you wait.
First, to protect your rights and avoid any question of timeliness, you must have the load inspected within the time frames prescribed by PACA regulations (7 C.F.R. 46.2) or your contract with the seller (which would supersede PACA). Federal inspection must occur within the following:
- Rail: 24 hours after notice of arrival and the rail car has been placed in a location where the produce is made accessible for inspection.
- Truck: 8 hours after the receiver or a responsible representative is given notice of arrival and the produce is made accessible for inspection.
- Boat: 24 hours after the produce is unloaded and made accessible for inspection and the receiver is given notice thereof.
Again, look at the contract with the seller, if you have one, as the contract may provide a different timeframe and would override the PACA regulations.
- SHOULD YOU REJECT?
Second, you must determine if you should reject the shipment.
This step is important because you must reject the shipment within the same times described above. In addition, if you wrongly reject the produce, the seller may have a right to sue you for the wrongful rejection. This leaves you little time to make a correct decision. Planning ahead is very important here.
The first issue: Do you have a right to reject the shipment?
If the produce was purchased as “delivered” or “delivered sale”, then the buyer can simply reject the produce if it is not delivered in the condition promised. If the deal was “FOB” or “shipping point,” then the situation is more nuanced (7 C.F.R. 46.43):
- FOB: If the load was shipped F.O.B., then the buyer assumes all the risk of damage during transit and can only reject the produce IF the shipper failed to deliver the produce to the carrier in “suitable shipping condition.”
- FOB acceptance or shipping point acceptance: Buyer cannot reject the produce but can sue the shipper for breach of contract if the produce was not delivered to the carrier in “suitable shipping condition.”
- FOB acceptance final or shipping point acceptance final: Buyer cannot reject the produce but can sue the shipper for breach of contract. “Suitable shipping condition does not apply.”
Note that the following actions are considered acceptance:
- Unloading all or part of the shipment: The buyer must notify the seller before unloading to inspect. If the seller does not receive notice, the buyer cannot reject the shipment based on the inspection. This is true even if the produce is unloaded for the purpose of storing it in a warehouse or cold unit pending the inspection.
- Diverting the shipment from the intended destination: If the buyer diverts the shipment to a new destination, it voids the seller’s warranty of suitable shipping condition.
- Consignment or resale: Acceptance occurs when the buyer places the shipment on consignment or resells it. However, the issue of consignment and resale can be complicated. Many produce transactions involve a chain of sales during which the produce is never unloaded and is basically in transit throughout. If the end buyer rightfully rejects the shipment after an inspection, it will communicate the rejection to the seller from whom it purchased the produce. The rejection may then be communicated back up the chain of sales to the original shipper, but it is not uncommon for the shipper or one of the subsequent sellers to “reject the rejection,” often leading to litigation.
If the terms of the shipment are FOB, FOB acceptance, or FOB shipping point acceptance, then you must determine if the seller delivered the goods to the carrier in good condition in order to determine if you should reject.
The second issue: Was the produce delivered to the carrier in “suitable shipping condition”?
“Suitable shipping condition is critical because:
- For some FOB shipments, rejection is only permitted if the product was not delivered to the carrier in suitable shipping condition, and
- If the shipper delivered the product to the carrier in “suitable shipping condition” then the carrier may be liable. In this case, if the buyer contracted the carrier, then the buyer must turn to the carrier for relief if the carrier is responsible. However, if the carrier is responsible but the shipper contracted the carrier, then the buyer must turn to the shipper.
“Suitable shipping condition” means that the produce meets the requirements of the contract at the time, and if the shipment is handled under normal transportation service and conditions, will assure delivery without abnormal deterioration at the contract destination agreed upon between the parties. See Cove Valley Packers, Inc. v. Pilgrim Fruit Co., 297 F. Supp. 200 (D. Mass 1969); 7 C.F.R. 46.43(j).
To avoid any questions in this regard, it is in the best interests of both the shipper and the buyer for the shipper to carefully document the state of the perishables as at the time they are delivered to the carrier.
- Shipping point inspection: Any inspection should be done as close to the time of delivery to the carrier as possible. In one case, 27 hours elapsed between the time of the USDA inspection and the time the carrier received the produce. Although the court did not exclude the certificate, the court found that “the length of time between inspection and delivery must be considered in determining the evidentiary weight to be given to the certificate.” Strock & Co., Inc. v. S. Pacific Co., 326 F. Supp. 695 (D. Mass. 1971) (citing Missouri Pacific R.R. Co. v. Elmore and Stahl, 377 U.S. 134 (1964)).
- Temperature: Document the temperature of the container delivering the perishables to the carrier. This is particularly important with produce that is vulnerable to soft rot decay or other issues relating to temperature.
This step is very important because it will determine who is responsible for the damage to the produce – the shipper/seller or the carrier. If you have a right to reject and have found that the produce was not delivered to the carrier in good condition, then the shipper is liable and you should reject the produce. If the produce was delivered to the carrier in good condition, the carrier is liable. In either event, you will need documentation to prove the damage and the losses you incur in selling a product of lesser quality, and claim the losses against the seller or carrier.
[This column is published for the purposes of providing a general understanding of the law. It is in no way a substitute for individual legal consultation and anyone with a legal problem should not rely on these answers but should instead consult their attorney. If you have a legal problem and do not know an attorney, call your local Bar Association’s Lawyer Referral Service.]