Damages vs. windfalls

The Problem: Calculating damages when the shipment is not received.

The Key Point: When assessing damages, the unpaid cost of the freight must be credited to the carrier even when the shipment is rejected or the carrier fails to deliver.

The Solution: The injured party is entitled to be made whole, it is not entitled to a windfall.

QUESTION:
We are a shipper-distributor with customers throughout the United States and Canada. We recently had two claims with the same truck broker. In both instances the product was never received. The first shipment was rejected by our customer for temperature abuse. The second shipment never made it to destination at all due to a mechanical breakdown.

In both cases the truck broker admitted this was a carrier problem and accepted “full responsibility.” But now, as we attempt to recover on the claim, the truck broker insists on a credit for the freight invoices. We feel we are entitled to recover the delivered cost of the product with no deduction for freight since the carrier never delivered either load. Please advise.

ANSWER:
You are certainly not the first to question why the carrier would be entitled to a credit for its freight invoices in these situations. If the carrier destroyed the product in transit or did not deliver at all, it’s natural to wonder why the carrier would be credited the full value of its freight invoice.

The answer, however, has nothing to do with the carrier’s performance or what the carrier “deserves,” and everything to do with the carrier’s obligation to compensate you for your losses following its breach of the contract of carriage.

When a carrier fails to deliver or damages product while in its possession, it is obligated to make the injured party whole; it is not obligated to grant the injured party a windfall.

If you were to recover the delivered cost of the product with no deduction for freight, you would be making out better than you would have had there been no breach. You would be getting paid in full from your customer, with complimentary freight to the destination market. And while you may feel that the aggravation caused by the trucks’ failures in these instances entitles you to something extra, you are only entitled to be made whole.

We find it helpful to discuss damages and the amount due as two separate things. When we use the term damages, we are referring to the difference between the value the shipment would have had, had there been no breach, and the actual value of the product given the breach—which is zero if the shipment was rejected or not delivered—plus any incidental expenses, such as inspection fees, you or your customer may have incurred.

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