Buyer's Rememdies for Seller's Breach III
This and the next page summarize our discussion in class on March 19. While our focus on March 12 was on the problem of acceptance, rejection and revocation of acceptance, the focus of this session was on what I called the "700 series" remedies, that is, the specific monetary or performance remedies avaliable to an aggrieved buyer. I listed the following comments you should know:
2-712, Comments 1-4; 2-713, Comments 1,3,5; 2-715, Comments 2, 4; 2-716, Comments 1-3; 2-719, Comments 1,3.
The basic point was that the Code has a section, 2-711, which itself is not a remedy but which shows how the series of remedies in the following sections may be invoked. I presented a chart in class which tried to capture the flow of this all-important section. I will reproduce it as best I can here.
The flow of 2-711. The Code provides that in one of four situations:
failure to deliver, repudiation (2-609, 2-610, 2-611), correct rejection (2-602) or revocation of acceptance (2-608), the buyer may cancel and receive any downpayment for the goods AND, in addition, have available the following remedies:
1) cover, under 2-712, as to all the goods affected; 2) damage recovey, under 2-713, for non-delivery of goods; 3) recovery under 2-502 if the seller becomes insolvent; and 4) in an appropriate case, specific performance or replevin of the goods under 2-716. I also went through the other remedies or limitation of remedies sections that are not indexed in 2-711, but most of which are mentioned in the revised 2-711 (new Article 2). Those remedies include:
5) damage recovery, under 2-714, where the goods have been delivered and accepted; 6) consequential and incidential damages under 2-715; 7) offsets under 2-717; and 8) liquidation of damages provisions under 2-718. The last is further qualified by 2-719, which provides that limitation of damage remedies are permissible unless they thereby cause the remedy to "fail of its essential purpose" (2-719(2)) or unless they are unconscionable (2-719(3)). Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable.
The Measure of Damages
As you know from your basic contracts course, measure of damages is crucial but can be tricky to calculate. Three sections, 2-712, 2-713 and 2-714, discuss the measure of damages in different fact situations. In addition, I will say a word about measure of damages in 2-718 and 2-719.
When there has been a non delivery or non-conforming delivery and the buyer has "covered," the buyer still has remedies spelled out in 2-712. Measure of damages when one covers is "the difference between the cost of cover and the contract price together with any incidental or consequential damages...but less expenses saved in consequence of the seller's breach (2-712(2))." This may be represented as follows:
2-712 Damages=CC-CP+(ID or CD)-Expenses.
When non-delivery has occurred and no cover has been yet pursued, 2-713 gives damages as follows:
2-713 Damages=MP (Market price)-CP+(ID or CD)-Expenses.
We spent some time in class examining the Allied case (p. 475), where a strict calculation of damages under 2-713 led the court to abandon the literal reading of the section for a reading derived from the principle of 1-106, which is in New Article 1-305. In that case, Allied had a contract to sell raisins to Victor, which itself had a forward contract to sell to a Japanese concern. Between the time that these contracts were made and delivery, a rainstorm significantly damaged the raisin crop. The result was that when the contract was repudiated, the market price was treble the price of the original contract [I discussed briefly, in response to a good question, whether breach and repudiation were the same thing. In a nutshell, they are not, but for the purposes of this case, the court concluded that "breach" occurred when the price of raisins was between 80-87 cents per pound]. Under a literal reading of 2-713, Victor would have been able to collect $150,000, with 2-713 damages calculated as above, without having put out hardly any money for the contract. If the contract had gone through as planned, the profit would have been about $4400 for the shipment. The court was confronted with the spectre of unjust enrichment and decided that the principle in Old 1-106, which provides that an aggrieved party should be put in "as good a position as if the other party had fully performed" should trump the literal language of 2-713. Recovery was permitted to the extent of Victor's expected profit.
The next page continues the discussion and concludes the class.