Being called a “technical trader” is not meant as a compliment, and we have tools to help you do business with these kinds of partners who seem to enjoy outmaneuvering their trading partners with contractual technicalities.
Here’s Part 2 of our quiz, which digs deeper into damages.
For Part 1, click here.
#6 Words of Good Intent
True or False: Provided the buyer delivers a timely trouble notice, when a seller tells a buyer to “do the best you can,” there is no need to call for a USDA or CFIA inspection certificate.
False – from Section (9.14): when produce arrives with problems at destination, the parties sometimes decide that no inspection certificate is needed because, at the time, both parties seem committed to amicably settling the transaction.
The problem with this approach is that if a dispute develops—such as when salvage proceeds are lower than expected—the agreement to “work it out” or “do the best you can” is likely to be understood as a mere statement of good intent, rather than a modification of the original contract.
#7 Modifying an Agreement
True or False: Verbal modifications to the original sales agreement are binding; therefore, when price adjustments are alleged “he said/she said” disputes are resolved in favor of the party with the better industry reputation and/or credit rating.
False – from Section (3.1): the party that alleges the original agreement was modified has the burden of proving it. And, from Section (9.14), a written confirmation (e.g., an email) of a verbal agreement to modify the original contract is evidence of a modified agreement, especially if the recipient of the confirmation fails to promptly object to its content.
#8 Damages Generally
True or False: When the seller breaches the sales agreement, the buyer, as the injured party, is entitled to be put in the same position it would have been in, had the seller properly performed under the agreement.
True – from Section (9.4): following a breach of the sales agreement, the injured party is entitled to recover damages from the breaching party. The amount recoverable equals the amount that reasonably and objectively places the injured party in the same position it would have been in had there been no breach.
A buyer’s damages generally equal the difference between the destination market value of the product in good condition (as contracted), and the actual value of the product given the seller’s breach, plus incidental damages (e.g., inspection fees).
The resulting damages figure must then be deducted from the seller’s original invoice price (or other amount owed the seller) to arrive at the amount due. Even in situations where the product is not delivered or is rejected, damages must be applied against the contemplated sales price; otherwise, the injured party would realize an improper windfall.
The injured party is entitled to be made whole; the injured party is not entitled to a windfall at the breaching party’s expense.
#9 Supporting Damages
True or False: Financial damages are presumed when the buyer shows a breach of the sales agreement.
False – Damages must be supported – from Section (9.6): the preferred method for establishing the value of defective produce (as shown by a third-party (usually government) inspection certificate is with reference to a detailed and true accounting of the sale reflecting a prompt and proper sale of the product. An accounting that reports the selling price for each carton sold and the date(s) of sale will be considered detailed.
The question of whether a detailed accounting reflects a “prompt and proper” sale must be considered on a case-by-case basis in light of the inspection results and market conditions during the timeframe in question; however, in close cases, when a detailed accounting is provided, sellers of defective produce are typically given the benefit of the doubt.
#10 Damages for Breach as to Size, Pack, Commodity, etc.
True or False: Damages resulting from a breach for size, pack, commodity, growing method, label, etc., are determined in the same way as damages for a breach of the warranty of suitable shipping condition.
False – from section (9.13): when the seller breaches the sales agreement by shipping a size, pack, commodity, growing method (e.g., conventional rather than organic), or label, for example, that does not comply with the sales agreement, damages following acceptance are generally limited to the difference between the destination market value of the commodity that was ordered and the destination market value of the commodity provided, as shown by the USDA’s Market News.
Unless the product shipped is affected with excessive quality or condition defects, the price difference shown by the Market News has been deemed to be a more objective measure of damages than the difference between the buyer’s sales results and the destination market value of the commodity ordered.
If the buyer does not believe it can sell the noncomplying product at prevailing market prices, the buyer may either (1) reject the shipment; or (2) explain to the seller that it will need to reject if a price adjustment or other modification to the original agreement is not made.
Because the Market News does not distinguish between labels, rejection or contract modification may be the only way for the buyer to establish damages if it chooses to accept product with a label that is different than what was specified in the sales agreement.
How Did You Do?
If you answered most of these questions correctly, you’re probably ready for the technical trader.
If you missed most of the questions, then we encourage you to take advantage of the resources offered by PACA, DRC, and Blue Book Services to become more familiar with the key trading principles.
Each of these organizations has a helpful website and staff available to answer questions and/or talk through a challenging transaction.
