When a buyer is entitled to keep product but is unwilling to renegotiate the original sales price with you on a shipment that has “failed to meet contract specifications at contract destination,” how do you determine what the adjusted price should be? What if there is no meeting of the minds on an equitable settlement or adjustment? If you are unable to agree on amending the original contract, the next step is calculating provable damages.

The best method to calculate provable damages is to obtain the representative prices for the commodity shipped for date of arrival utilizing the USDA Federal State Market News Service for the closest location of where the product was sold. Looking at the price quote range, you would use the average price for product. If you are presented with a detailed accounting from your customer, you can verify and determine the average actual sales price from this accounting. By subtracting your customer’s actual sales price from the average Federal State Market News price from the area where the product was sold, you can calculate the damages per carton. Remember that when it comes to the detailed accounting, all you care about is the average actual sales price. Freight charges and other expenses do not come into play because the Federal State Market News prices already include those costs.

An example:

Federal State Market News Range for your commodity is $18-$21.00 per carton (avg $19.50)  Your customer’s average actual sales price is $15.75
$19.50 – $15.75 = $3.75 of damages 
Therefore, your customer would be allowed a $3.75 per carton adjustment from the original per carton price.

In the subsequent case, where your customer does not supply you with a detailed accounting to determine their average actual sales price, you would take the total amount of condition defects reflected on the USDA inspection, which verified the original breach of contract, and utilize the Federal State Market News quote (if available) or the delivered price and get a percentage to determine damages.

An example: 

22% total condition defects reflected on USDA inspection certificate
Federal State Market News or delivered price was $19.50
22% x $19.50 = $4.29 damages
Therefore, your customer would be allowed a $4.29 per carton adjustment from the original per carton price.

Should you be faced with a similar situation when it comes to the calculation of provable damages, settlement options or require further guidance, please do not hesitate to contact me at 949.885.2392 or [email protected].