Date: Sep 02, 2014

What happens when a buyer negotiates and confirms a sales contract  for  shipment, has provided P O numbers, or emailed terms and conditions demonstrating a clear meeting of the minds has transpired, or you have had other interaction establishing a sales agreement, to only later,  before the shipment transpires, be notified that the order is cancelled?  What are your rights and remedies in such a situation?

 If you have a confirmed and documented sales contract, and the contract is cancelled for any reason, you need to properly protect your sales contract rights against potential losses.   To protect the confirmed contract, immediately place the buyer on notice in writing that you are not in agreement with the cancellation, and they will be responsible for any resulting loss by cancelling their order. 

In your written notice, the buyer must be advised that you will mitigate the resulting loss by selling the product for the account of whom it may concern, and that you will be holding them (your buyer) responsible for all losses incurred due to their cancelling of the contract.  When putting your customer on notice, make sure to reflect the number of cartons that were contracted, the agreed upon price, and any other relevant reference number(s) that connects to the sales contract. It is important to maintain the integrity of each individual sales contract as you mitigate losses, so the cancelled orders connect to the original contracted product.

Next, secure a detailed accounting from the company that actually sells your product or make sure to document the new sales contract with the new buyer.  Damages are established by deducting the net proceeds (or new sales contract price) from the negotiated price with the original buyer. Any resulting difference is your loss/damages.  When your loss is finalized, fully document and communicate that amount to the buyer and submit the invoice reflecting your aggregated loss with supporting documentation for payment immediately to the buyer. 

Finally, remember that damages from a contract cancellation is a two way street.  As the seller, you can also be responsible for damages if you need to cancel your contract for any reason, so be prudent with your buyer when negotiating and committing to volume and fully understand the consequences of failure to perform.  Please contact me with any questions at 949 885-2269.

WG Staff Contact

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