In the November/December 2022 issue of Parcel Counsel, we looked at the landmark case Hadley v. Baxendale. That column focused on consequential damages as opposed to actual damages. This begs the question, “What are actual damages?”
The term “actual damage,” as well as the terms compensatory damage, direct damage, and general damage, all refer to the same type of damage – those which directly relate to the loss. Significantly, the term “actual damage” is used in the federal statute known as the Carmack Amendment, 49 U.S.C. § 14706, which governs liability when cargo is lost or damaged. Pursuant to this statute, regulated motor carriers “are liable to the person entitled to recover under the receipt or bill of lading. The liability imposed under this paragraph is for the actual loss or injury to the property…”
The majority view of today’s courts is that the actual loss to the shipper is measured by the destination market value of the product. In instances where there has been a sale, the destination market value is the amount of the seller’s invoice to a customer. However, the carrier community very strongly believes that if a seller, after a loss, sends a replacement from inventory then the seller will receive a double profit… and, accordingly, the customer should only be entitled to recover its replacement cost.
Their reasoning goes like this: Assume that the invoice price was $100 and that the replacement or manufactured cost of the substituted product is $60. The argument of the carriers is that if the seller receives $100 from the carrier for the lost product and then $100 from the customer for the replacement product it results in an $80 profit (2 x $40) on just one sale.
This argument has been rejected by most courts. These courts say that the seller did not get a double profit because the seller did not get any profit at all on the item that they took from inventory that they could have otherwise sold to someone else for $100.
The same issue came up in 1840 in the Hadley case. Although the Hadley case is routinely cited by the defendants in cargo claim cases for the proposition that consequential damages are only recoverable if foreseeable, there is another holding in Hadley that also relates to modern day cargo claims for which I have not seen Hadley cited, that is, how to determine actual damages.
The Hadley court stated, “we deem it to be expedient and necessary to state explicitly the rule which the Judge, at the next trial, ought, in our opinion, to direct the jury to be governed by when they estimate the damages.” Citing an even earlier case, the Hadley court stated, “and here there is a clear rule, that the amount which would have been received if the contract [of carriage] had been kept, is the measure of damages if the contract is broken.”
“In speaking of the rule respecting the breach of a contract to transport goods to a particular place…the difference in value between the price at the point where the goods are and the place where they were to be delivered, is taken as the measure of damages, which, in fact, amounts to an allowance of profits;’…: ‘The damages due to the [seller] consist in general of the loss that he has sustained, and the profit which he has been prevented from acquiring…’” Stated in the modern vernacular, the Hadley court tells us that the measure of damages in a cargo claim should be the destination market value or invoice price, not the manufacturer’s cost or replacement value.
All for now!
Brent Wm. Primus, J.D., is the CEO of Primus Law Office, P.A. and the Senior Editor of transportlawtexts, inc. Previous columns, including those of William J. Augello, may be found in the “Content Library” on PARCELindustry.com. Your questions are welcome at firstname.lastname@example.org.
This article originally appeared in the January/February, 2023 issue of PARCEL.