Making Amends

Returning to our example, if the claimant failed to properly support its salvage proceeds, these proceeds may be determined by multiplying the destination market value of the commodity in good condition, or $18,000, by 18 percent—the total percentage of defects or “checksum” shown on the USDA inspection certificate—to arrive at base damages of $3,240. Adding the $200 inspection fee to this figure we arrive at damages of $3,440, which we then deduct from the $10,000 f.o.b. invoice price to arrive at a balance due the seller of $6,560.

As inexact as this alternative method for calculating damages may be, it is an objective basis for compensating a buyer for a carrier’s breach in those instances where the buyer fails to provide a detailed account of sales showing a prompt and proper resale of the distressed produce. Industry veterans will tell you this approach favors the seller, and rightly so, considering it is typically only used when the buyer fails to properly account for the sale of the distressed product.

What if the buyer can show a breach of the sales agreement, but cannot show financial damages? This happens in situations when, for instance, the buyer orders ‘medium’ product but the seller ships ‘extra large.’ In this situation the seller has clearly breached the sales agreement, but unless the buyer can establish that ‘extra larges’ were selling for less than ‘mediums’ in the destination market, the buyer will have no basis for claiming damages after accepting the shipment.

If the buyer does not feel it can move the extra-large product for whatever reason (and the parties cannot agree on a price adjustment or alternate terms such as consignment or price-after-sale), the buyer is within its rights to reject the shipment (prior to accepting by unloading or otherwise) and claim the full destination market value of the medium product, $18,000 in our example, against the seller.

This $18,000 figure, however, must be reduced by the seller’s invoice price because the buyer would have had to pay for the medium product had there been no breach; therefore, it cannot recover the destination market price while avoiding this expense.

It must be remembered that an aggrieved party is only entitled to be placed in as good a position as it would have been in had there been no breach; the aggrieved party is not entitled to a windfall.

Deducting the seller’s $10,000 invoice price from the $18,000 market price for mediums, we arrive at an amount due from the seller to the buyer of $8,000. After paying the $5,000 freight bill, the buyer is left with gross proceeds of $3,000 and, in theory at least, is made whole.

Although this may sound severe from the seller’s perspective, the seller is responsible for making the aggrieved party whole following its breach. Also, it should be remembered that following the rejection, title to the product reverts to the seller, who now has the opportunity to move the product and collect salvage proceeds to mitigate its losses.