Buyer's Remedies Worksheet Answers
Prof. Bill Long 4/21/05
These answers go to the worksheet of 3/31. Sorry for the delay in posting.
1. 2-714(2) is the section which helps us here. We have "warranted" goods under the code, and B is able to collect damages because of the breach. "The measure of damages for breach of warranty is the difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted..." Here the value as warranted is the true value or market value of what was promised and NOT necessarily the purchase price. Thus the recovery is $3,500-800= $2,700. If she got a "bad deal" by paying $3,200 for a ring whose market value would have been $2,800 if it had been as promised (i.e., if it "had been as warranted"), then the recovery would be $2,800-800= $2,000.
2. This problem explores the liquidated damages provision in 2-718(1). It provides that damages may be liquidated by agreement but that they must be "reasonable in the light of the anticipated or actual harm caused by the breach." The section goes on to say that an unreasonably large liquidated damages provision is void as a "penalty." Here the amount of $100 per day for late delivery is such a liquidated damages provision. Even though it is called a "penalty," a court will not automatically read it as such and therefore disallow it. In fact, given that time appears to be of the essence in the fact pattern, a liquidated damages provision of $100 per day seems eminently reasonable, despite being called a "penalty." I would say that a court would uphold the provision.
3a. The "giveaway" in the fact pattern is the word "unique." It implicates the specific performance provision, 2-716. Recall that under the CL, in order to get a grant of specific performance one had to have "heirloom-type" goods at issue--that is, goods that were irreplaceable and "one of a kind." The Code has relaxed that requirement. See 2-716 Cmt. 2, especially "a new concept of what are 'unique' goods is introduced under this section." Note that the court is granted great leeway here--"uniqueness is not the sole basis of the remedy under this section for the relief may also be granted 'in other proper circumstances..." This would appear to be one of those circumstances. The painting is "unique." B would be hard-pressed to "cover" under 2-712.
3b. I gave this example because it deals with goods to which B undoubtedly has some right but B would not be able to use the specific performance criterion because noodles are not unique goods. B's remedy is under 2-716(3). Replevin is a common law term that the Code took over because they really couldn't find a better one. The remedy is probably invoked rarely, but the Code provides for it.
4. This problem is all about cover, and B's remedy will be under 2-712. Recall that after a breach as described in 2-711 a buyer may 'cover' by making in good faith and without unreasonable delay any reasonable purchase...in substituttion for those due from the seller. The question in this instance is whether B's purchase was "reasonable." The reason I gave you the factoid regarding this being the third place where B shopped for goods is to increase the probability that the price for the replacement refrigerator ($1,200) was "reasonable." I believe that a court would find it so, even though it cost $200 more than the contracted-for model. However, recovery will only be $150 because the damages, as measured by 2-712(2), include the provision "less expenses saved in consequence of the seller's breach." The seller has breached here, but B has not incurred the $50 delivery charge. Therefore, this is an "expense" that buyer has "saved."
4b. What is the legal effect of S's pointing out that an advertised special for the same model is available for $1000? Probably nothing. That is, B will likely still get a $150 recovery. Notice the language of Cmt. 2, "The test of proper cover is whether at the time and place the buyer acted in good faith and in a reasonable manner; and it is immaterial that hindsight may later prove that the method of cover used was the cheapest or most effective." Good faith is the test, rather than "cheapest deal." B will likely be able to show that his/her purchase was in good faith.
4c. This is a more difficult question, because it adds a factor that the Code doesn't directly address--the replacement or "cover" with an upgraded model. The Code envisions cover with identical items. However, if none is available or if the purchase is made in good faith, there should be no reason why the Buyer should "pay for" the risk of loss rather than the seller. I think that the higher the cost of "cover" is, the less a court will be willing to grant that B's action was reasonable or in good faith, but a $300 price differential doesn't seem to reach that level for me. If another model of identical quality to what was originally contracted-for was available, however, that would be a different story.
5. Here we are plunged into the world of consequential damages and 2-715. B ought to be able to recover from S his direct damages, which this question doesn't really focus on, but also the way that the loss has hurt the business. The central issue I wanted to get to here was whether the diminution in value of the company (from $1,000,000 to $500,000) was a "consequential damage" from the perspective of the Code. I think it may be, especially if you argue that it is a "loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know" (2-715(2)(a)). That is, B could argue that s/he had a "general" requirement that the goods (rubber) be merchantable and that S, as a merchant, should have known this or "had reason to know" this, and that business could be impacted very negatively if the major product in the goods (rubber) was not of merchantable quality. If you can convincingly make this argument, then consequentials are available. Loss in value of business, then, may be a consequential damage. Here the stress is on good lawyering. I think the issue is a close call.
6. This problem explores the world of 2-718(2)(b), the "20% rule," when there is no agreed-upon liquidated damages provision. The facts seem to fit the langauge of the section perfectly. The seller in this example is justified in withholding delivery of goods because of the buyer's breach. There is no liquidated damages provision. Thus we go to (2)(b), where B would be obligated to the tune of "twenty per cent of the value of the total performance" or "$500, whichever is smaller." Here the contract price was $3,000. Twenty per cent of $3,000 is $600. $500 is smaller than $600, so the B will be entitled to restitution "of any amount by which the sum of ..payments exceeded" $500 (2-718(2)). Payments exceeded $500 by $300, since B paid $800 as down payment. Therefore, B would be entitled to collect $300 from S.
7. The problem explores the issue of whether the buyer is free to sue for market minus contract meaasure of damages under 2-713 when it has covered below the market price. That is, will B's measure of damages be $5 per pound, in strict accordance with the language of 2-713 ("difference between the market price at the time when the buyer learned of the breach and the contract price...") or will another section of the Code prevail? This problem also exists in the "seller's" case, Tesoro. S will, no doubt, argue that to award B $5 per pound in damages would be to give unjust enrichment to B. S will rest on the basic Code principle articulated in new 1-305--that remedies in the Code are to be liberally administered "to the end that the aggrieved party may be put in as good a position as if the other party had fully performed." Most courts would go the direction of the Tesoro court and award B only $1 per pound difference. The result seems intuitively just, but it does tend to make one wonder--because the language of the Code seems so clear in 2-713 to apply to this situation. It shows that courts still have a lot of power to articulate a public policy even sometimes in direct contravention to the language of the statute.
8. Again, this problem deals with something that the Code doesn't directly address--the repair that is not a "perfect" repair. If the repair was "perfect," it is pretty claer that the recovery should be $1,200. As one commentator says, "The courts have in many instances used the cost of repair as a measure of damages for nonconformity of accepted goods." Courts have used 2-714(2) to justify this result. The problem I gave you however adds the "twist" that the repair effort was only a "patch up" job. Nothing in the Code tells you what the measure of damages is, but good lawyering will try to establish by credible evidence how much the oven is worth once it has been patched up and then use the difference between the new value and the purchase price as the measure of damages requested.
9. This last problem deals with consequential damages, again, and is meant to focus on the phrase "which the seller at the time of contracting had reason to know" (2-715(2)(a)). The seller would have had reason to know that the pizza parlor was open Thursday, Friday and Saturday. All businesses advertise their opening hours. Thus, S should be charged with knowledge of the three days opening. Should S be charged with knowledge of the Sunday party and the fact that B would keep the parlor open that day for other customers? Probably not. The facts mention that B was planning to open "specially" that Sunday. Thus, consequential damages would probably be $6,000 rather than the $9,000 that B seeks.
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