Risk of Loss and Rejection in an FOB Rice Shipment
On 3 May, Monrovia Importers Ltd. contracts with Sahel Grain Co. for 500 bags of parboiled rice at US$18 per bag, 'FOB Freeport, Monrovia, shipment by 30 June.' Sahel delivers the rice to the carrier on 25 June and obtains a clean bill of lading naming Monrovia Importers as consignee. The bill states 'shipper's load and count.' The rice arrives on 20 July. Forty bags are water-damaged; testing shows the damage occurred before loading because bags were stacked on a wet warehouse floor. Monrovia Importers rejects the entire 500 bags on 10 August and buys replacement rice at US$23 per bag. Sahel argues risk passed at shipment, the rejection was late, and damages should be limited to the contract price. The contract is silent on inspection and notice.
1. When did risk of loss pass under the Liberian Commercial Code, and does the pre-shipment damage change the analysis?
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Issue: When risk of loss passed and effect of pre-shipment damage.
Analysis: The contract is an FOB shipment contract: seller completes delivery by putting conforming goods into the carrier's hands and obtaining a bill of lading. Under the Liberian Commercial Code's sale-of-goods rules, risk passes to the buyer when the seller ships conforming goods, even if the buyer has not yet received them. But risk does not pass if the goods are nonconforming or if the seller has breached in a way that affects the goods. The inspection shows 40 bags were water-damaged before loading because they were stacked on a wet floor. Those 40 bags were nonconforming at shipment. For them, risk remained with Sahel. For the other 460 bags, risk passed on 25 June, and the carrier's later seawater damage-if any-would be the buyer's risk, subject to insurance or carrier liability. The clean bill of lading does not override actual pre-shipment damage, especially with a 'shipper's load and count' clause.
Conclusion: Risk passed for 460 bags but not for the 40 damaged bags.
2. Was the 10 August rejection effective? What notice is required, and what happens if notice is late?
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Issue: Whether the 10 August rejection was effective and what notice was required.
Analysis: A buyer must inspect goods and notify the seller of any breach within a reasonable time after tender or delivery. What is reasonable depends on the goods, trade usage, and the buyer's opportunity to inspect. Rice is perishable and subject to inspection; 21 days from arrival to rejection is arguable but not automatically unreasonable, especially if testing was needed. However, rejection of the entire 500 bags is effective only if the nonconformity substantially impairs the value of the whole commercial unit. Forty bags out of 500 is 8 percent; the bags are separate units and the conforming 460 can be used. The buyer therefore cannot reject all 500; it may reject the 40 and accept the 460. If the buyer accepted the 460, it must still give timely notice of the defect in the 40 to preserve damages.
Conclusion: The rejection is effective only as to the 40 damaged bags; the purported rejection of the 460 is ineffective, but damages for the 40 remain if notice was timely.
3. What damages may Monrovia Importers recover if it keeps the 460 conforming bags and rejects the 40 damaged bags?
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Issue: Damages if buyer keeps 460 and rejects 40.
Analysis: Under the Commercial Code, a buyer who covers after breach may recover the difference between the cost of cover and the contract price, plus incidental and consequential damages less expenses saved. Here cover cost was US$23 per bag versus US$18 contract: US$5 × 40 = US$200. The buyer may also recover reasonable inspection and transportation costs attributable to the 40 bags. Consequential damages, such as lost sales, require proof of foreseeability at contracting and cannot be assumed. The buyer cannot recover the full US$5 × 500 because it kept 460 conforming bags at the contract price. If the buyer paid in advance, it is entitled to restitution or offset for the 40. Sahel may counterclaim only if the rejection of the 460 was wrongful; on these facts it was.
Conclusion: US$200 cover damages plus proven incidental costs for the 40 bags; no damages for the 460.