Occasionally I receive comments and questions on my blog that require a response so thorough and universally valuable that they warrant their own post. My last post, entitled Establishing Damages for a Breach of Warranty, received one such comment from one of our readers. Our reader stated:
"Thank you for informing your growers that they do not have the right to move produce that fails good delivery. Please also let them know that good delivery guidelines are based on a five day transit. They seem unaware that the tolerances go down for shorter transit times. Your growers should also know that they are not entitled to an account of sale."
First of all, I would like to thank our reader for their comments in regards to establishing damages due to a breach of contract. It is true that a shipper does not have the right to move his product once it is received and accepted by the buyer if the product fails to meet good delivery. The buyer at all times owns the product unless he wishes to reject it back to the shipper prior to acceptance.
Five Day Transit
Now let's tackle good delivery guidelines. Good delivery guidelines are based on a five day transit time (Source link), usually considering the time from the West Coast to the East Coast by truck. Our reader is correct in stating that shorter transit times can reflect stricter tolerances. For those stricter tolerances you must call the PACA or as always feel free to contact me.
Account of Sale Entitlement
Lastly the reader states, "Your growers should also know that they are not entitled to an account of sale". What our reader is stating is accurate; growers are only entitled to an account of sale when product is to be handled on a consignment basis. At all times under these circumstances a detailed accounting must be provided.
While a detailed accounting is not necessarily required when establishing damages for a breach of contract, it does offer the best evidence of the true value. As I indicated in my recent blog, the general measure of damages for a breach of contract, when the produced is accepted by the buyer, is the difference at the time and place of acceptance between the value of the good accepted and the value they would have had if they had been as warranted. Therefore, the value of accepted goods is best demonstrated by the gross proceeds of a prompt and proper resale as evidence by a proper accounting provided by the ultimate consignee. A proper accounting should show a breakdown of sales of individual lots of produce with the number of containers sold at each price and the date of which sales of each lot took place.
No Account of Sale, Now What?
If your buyer does not wish to supply you with a detailed accounting so damages could be calculated, there are two methods to determine the value of goods.
1. USDA Market News Wholesale Reports
This is the next best method that would show the average price at which the goods could have sold for if the product arrived at destination meeting good arrival tolerances.
2. Delivered Price Minus Condition Defect Percentage
If the buyer is not located in an area covered by a USDA market news wholesale report, then the delivered price, FOB value plus the freight, may be used as the measurement of the value as warranted. Therefore, if a detailed account of sales is not provided, in order to determine damages, one would have to look at the wholesale market news quote, for the commodities shipped, and deduct the percentage of condition defects from the post-sale market quote in order to determine amount of damages incurred by the buyer or utilize the delivered cost.
Why Buyers Should Submit a Detailed Accounting
It is usually to the buyers benefit to submit a detailed accounting, which is the best measure of damages, based on the breach of contract. The method of subtracting the amount of condition defects from the wholesale market price may actually be a disadvantage for the buyer. In conclusion, while the reader is correct in stating that a detailed accounting is not required when trying to prove damages, it would definitely be to the advantage of the buyer.
As always if you have any questions please don’t hesitate to pick up the phone and give me a call or leave a comment below. My direct line is (949) 885-2269.