Professor of Law
Ohio State University College of Law
Columbus, Ohio
Gregory M. Travalio
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Synopsis
§ 23.01. Introduction.
§ 23.02. Application of the Uniform Commercial Code to Gas Purchase Contracts.
§ 23.03. Seller's Remedies Under the Code.
[1]--Section 2-706: The Right of Resale.
[2]--Section 2-708: The Contract/Market Difference v. Lost Profits.
[3]--Determination of Market Damages.
[4]--Action for the Price.
[5]--Specific Performance or Periodic Payments.
§ 23.04. Conclusion.
§ 23.01. Introduction.
The purpose of this Chapter is to examine some of the problems confronting courts faced with a buyer's breach of a long-term contract for the purchase of natural gas. As we will see, most of the problems discussed are not unique to long-term gas purchase contracts. However, because of the nature of the market and the unique provisions of many gas purchase contracts, some of the difficulties are particularly intractable in this context.
The issue of seller's damages arises, of course, whenever there is a breach by a buyer of a long-term gas purchase contract. It is especially timely, however, in view of the Chapter 11 Bankruptcy of Columbia Gas
Transmission Corp., and the impact of the Federal Energy Regulatory Commission's (FERC) Order 636.
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It can also arise in other contexts such as litigation over the amount of royalties payable by a producer to the owner of the mineral rights and the valuation of producing property.
This Chapter begins with a short discussion of the application of the Uniform Commercial Code (UCC or

Code) to gas purchase contracts. It then discusses the available remedy provisions of the Code, focusing in greater detail on a few significant problems faced by courts in applying these provisions to long-term gas supply contracts. Finally, it briefly explores alternatives to traditional damage recoveries.
§ 23.02. Application of the Uniform Commercial Code to Gas Purchase Contracts.
Section 2-107(1) of the Code states: "A contract for the sale of minerals or the like ( including oil and gas )...to be removed from realty is a contract for the sale of goods within this Chapter if they are to be severed by the seller . . .."
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The original draft of this Section did not include the parenthetical "(including oil and gas)." In 1972, however, the Section was amended to include the parenthetical and the cases since then have uniformly applied the Code to contracts for the sale of oil.
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§ 23.03. Seller's Remedies Under the Code.
The seller's remedies under the UCC are catalogued in Section 2-703.
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While these remedies are applicable in a number of potential breach scenarios,
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this Chapter is primarily concerned with the repudiation by a buyer before full performance of its contractual obligations to purchase natural gas. Assuming that the repudiation constitutes a breach of the whole contract,
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the seller can cancel the contract and is entitled to the remedies enumerated in Section 2-703.
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There are four damage remedies in Section 2-703, although they reside in only three sections of the Code.
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Each of them is potentially applicable in the context of a repudiation of a long-term gas supply con-tract; each presents its own particular problems. It should be kept in mind throughout that the intent of the Code's remedial provisions is to put the seller in the same position as if the contract had been performed.
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The remainder of the Chapter will consider each of these measures in detail.
[1]--Section 2-706: The Right of Resale.
The Code provides both an aggrieved seller and an aggrieved buyer a right to measure damages by a substitute transaction, a right that was unavailable at common law.
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An aggrieved buyer may purchase substitute goods and recover the difference between the contract price and the price of substitute goods so long as the purchase was made in a commercially reasonable manner.
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The seller's analog is found in
Section 2-706, which permits a seller to resell the goods that were the subject of a contract repudiated by the buyer and to recover the difference between the contract price and the resale price.
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If the resale is made in good faith and in a commercially reasonable manner, the aggrieved seller can recover the difference between the resale price and the contract price.
As a general matter, this Section has posed few problems in application.
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Courts need to remember that, to the extent the seller saves expenses on the resale contract, perhaps because transportation expenses are less, these savings should be deducted from the recovery. In addition, Section 2-706 provides for recovery of both the reasonable search costs of finding a new buyer and the cost of retaining the goods for a reasonable time until delivery is made under a resale contract.
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At least one thorny problem may occur, however, particularly in the context of a long-term supply contract.
Assume, for example, that a buyer has repudiated a contract to purchase natural gas in the second year of a contract that obligated the buyer to purchase natural gas for the productive life of the property. The contract calls for the purchase of 75% of the deliverable capacity of the property at a price of $5.00 per MMBTU.
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On the buyer's repudiation, the seller then makes another contract with a different buyer to sell 100% of the property's deliverability over a two year period at $2.50 per MMBTU. Can the seller recover Section 2-706 damages measured by the difference between the contract price and the resale price for two years of the breached contract?
Although it would not be possible in this hypothetical, if the seller can show that it could have performed both contracts had the buyer not breached, it could be a lost volume seller.
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If the seller is able to prove lost volume seller status, recovery under Section 2-706 will be undercompensatory and inappropriate. If the seller is not a lost volume seller, the question remains whether the second contract, which could not have been entered into but for the breach of the first, should be used to measure damages.
Section 2-706(2)
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requires only that the resale must be reasonably identified as referring to the broken contract. It is not necessary, however, that the goods be identified to the contract or even be in existence at the time of the breach to constitute a resale for purposes of 2-706. Thus, even though the gas would probably not be identified at the time of breach, 2-706 would not preclude the later contract from being a substitute. In fact, because natural gas is a fungible good, it is probably unnecessary that it ever be identified to the contract to constitute the subject of a resale contract.
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Is the resale reasonably referable to the broken contract under these circumstances? The answer can only be: it depends. To take advantage of Section 2-706, the seller will have to show that the resale contract constituted a reasonable disposition of the goods and that the contract terms are sufficiently comparable that it can serve as a substitute for the breached contract. In the hypothetical case, it may be difficult for the seller to recover Section 2-706 damages. The significant difference in the length of the two contracts and the quantity the buyer agreed to purchase may have greatly affected the price of each. There may be other terms in the resale contract that also impact on the resale price, which cannot be easily valued in dollar terms, making it inappropriate as a substitute contract. In such a case, the difference between the market price and contract price for a contract similar to the breached contract may be a more accurate measure
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and would be available to the buyer.
[2]--Section 2-708: The Contract/Market Difference v. Lost
Profits.
Section 2-708(1)
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provides the basic measure of damages in the event of repudiation by a buyer: the difference between the contract price and the market price at the time and place of tender. This is the classic measure of damages for repudiation by a buyer
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and is intended to put the seller in the same economic position as performance. If A contracts to sell B his car for $500, and B repudiates, A presumably can dispose of the car on the market for the prevailing market price. If the market price is less than the contract price, e.g.
, $400, the seller can collect the difference of $100 from the buyer and be in the same economic position that he would have occupied had the buyer performed. While there are some serious practical difficulties in applying this provision, which we will deal with in the next section,
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the theory behind it is simple.
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Pre-Code cases recognized that contract/market damages may not be sufficient to place an aggrieved seller in the same position as performance.
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Early revisions to the Uniform Sales Act contained a provision permitting the seller to recover a greater amount than the contract/market differential where circumstances required.
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This provision ultimately became Section 2-708(2) of the Uniform Commercial Code. It provides:

If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Chapter (Section 2-710), due allowance for costs reasonably incurred and due credit for proceeds of resale.
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While Section 2-708(2) has been applied in a number of different contexts,
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the underlying theory is essentially the same: the breached contract has not created an opportunity to otherwise dispose of the goods on the market; rather, the seller has lost a sale that cannot be recaptured. A simple example from Professor
Nordstrom's treatise on sales illustrates the principle:
Suppose an automobile dealer entered into a contract with a buyer for the sale of an automobile for $3000.
The dealer had other models like the one sold and could obtain still others from the manufacturer within a few days. The buyer either repudiated the contract or wrongfully rejected the conforming tender. One week later the dealer sold the same automobile to a third party for $3,000.
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Neither the resale remedy of Section 2-706 nor the market/contract differential (assuming the retail market price is $3,000) will net the seller a recovery. Nonetheless, the seller has lost a sale and the profit from that sale. If the seller's supply is greater than the demand for the item, it could have satisfied all subsequent buyers, even if the buyer had performed the breached contract. Thus, it should receive its lost profit on the sale.
Section 2-708(2) has engendered a storm of scholarly commentary and a vigorous academic debate. Much of the controversy centers on micro-economic theory and is critical of both the propriety of granting lost profits in at least some cases in which they have been assumed to be appropriate and the method of calculation applied by courts.
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Even those arguing for a restrictive application of Section 2-708(2) accept its premises in some circumstances, however, and courts have generally assumed that the theory behind the recovery of lost profits is valid. There have been very few cases involving natural gas contracts in which courts have been called on to determine damages under Section 2-708.
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Thus, most of the analysis in this section is based on general principles derived from case law in other areas.
The decision whether to apply the market/contract measure of Section 2-708(1) or Section 2-708(2) has been litigated in a significant number of cases outside the area of natural gas. The touchstone is whether the breach of the contract made a sale possible by the seller that would not otherwise have been possible. If so,
Section 2-708(1) is the proper measure of damages; if not, lost profits should be recoverable under Section
2-708(2). For example, in Bill's Coal Co., Inc. v. Public Utilities of Springfield ,
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the buyer breached a long-term coal supply contract by refusing to take delivery of some shipments under the contract. The seller sued for lost profits under Section 2-708(2). The court held, however, that it had been demonstrated at trial that the seller did not have the production capacity during the contract period both to fulfill the contract with the buyer and to sell coal to third parties. In fact, at times the seller, a coal producer, had to buy coal on the market to fill the buyer's requirements. Thus, the court found that the breach by the buyer had made possible the sale of coal to third parties and, therefore, the contract/market differential was the appropriate measure.
Courts have also generally allowed the recovery of lost profits by "middlemen," or "jobbers," who never acquire the goods that are the subject of the contract.
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In these cases, where the buyer breaches, and the seller's (jobber's) decision not to acquire the goods is commercially reasonable, courts have permitted a recovery of lost profits.
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In Tri-State Petroleum Corp. v. Saber Energy, Inc.
,
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the parties entered into a contract for the seller to deliver 110,000 barrels of gasoline per month to the buyer for six months. Two months later the buyer repudiated the contract. The court held that the seller was entitled to lost profits for

the gas that it never purchased for resale to the buyer because of the buyer's repudiation.
Application of these concepts to gas supply contracts is sometimes simple; at other times they might produce significant difficulty. For example, if a buyer contracts with the seller for the exclusive dedication of the seller's production to the buyer for the useful life of the well, Section 2-708(1) is clearly the appropriate measure on repudiation by the buyer. This is a typical seller-producer/buyer-pipeline relationship. Because of the buyer's breach, the seller can now sell to other customers, a choice that had been precluded by the exclusive nature of the contract.
At the other extreme, if the seller and buyer have a contract under which the seller is to provide the buyer with a fixed amount of gas over a short period of time and the buyer repudiates, lost profits may be appropriate despite the later sale of the gas to another buyer. If the seller could have supplied the subsequent buyer had the first buyer not breached, and if the seller has sufficient reserves to supply gas to its customers into the foreseeable future, the seller has lost a sale and should recover its lost profit. In the Order No. 636 era, this may be a seller- marketer/buyer-LDC relationship, or a seller-producer/buyer-LDC relationship where there is no dedication, simply an aggregation of supply by the seller.
The difficulty, even in the above example, is that, to be a truly lost volume seller, there must be sufficient quantity available to the seller to meet all of its future demand. Otherwise, the seller will not have actually lost a sale because of the breach, although the sale made possible by the breach may not occur until well into the future. To illustrate this problem with a simple (and simplistic) example, suppose that a seller has
100 widgets and cannot acquire any more after these are exhausted. After it has sold three widgets, a buyer who had agreed to buy the fourth widget repudiates and widget 4 is sold to another. The seller continues to sell widgets until its supply is exhausted. The sale of the final (100th) widget is only possible because of the breach by the original buyer of widget 4. Had that buyer not breached, widget 100 would have been sold one buyer sooner than it was. Thus, the sale of widget 100 to the final buyer was only possible because of the breach by the original buyer of widget 4 and the seller has not lost a sale. Here, award of the full lost profit is overcompensatory.
On the other hand, the seller will not necessarily be made whole by an award of the market/contract difference. Assuming that the contract price and market price were the same at the time and place of tender, the seller would not be entitled to any damages.
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Yet, it is undeniable that the seller has suffered a loss.
The profit from the breach of the original contract for widget 4 is not recovered until the sale of widget 100.
In the meantime, the seller has lost the use of the profit on the breached contract for widget 4. Depending on the available supply, and the demand for, the goods, the period between the breached contract and the sale made possible by the breach may be very long or very short.
There are, of course, further possible complications. Widget 100 may be sold at a different price than the contract price for widget 4, and may have cost the seller a different amount to buy or produce than widget 4.
In addition, at the time of trial, it may not be possible to determine when the supply will be exhausted and the lost sale "made up" or, perhaps, whether it has already been made up.
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The implications of this are especially troublesome when considered in the context of a repudiation of a long-term gas contract, where the seller is a producer of natural gas and is permitted under the contract to service customers other than the buyer. Obviously, no reserve of gas is unlimited. At some point the producer will have exhausted its supply. Therefore, a buyer's breach will never truly create a "lost sale." At some point the producer will be unable to extract further gas economically and the final sale or sales prior to exhaustion would not have been possible but for the buyer's breach.
In a situation where a producer has large reserves, however, the lost profit on the repudiated contract may not be "made up" for a long period of time. If we assume that the seller could have continued to provide gas

to other customers, even if the buyer had not breached, it will lose the "profit" on the contract until the point where it makes the final sale or sales, or otherwise makes a sale that would not have been possible but for the breached contract. This could conceivably be many years after the breach. On the other hand, the
"lost profit" will eventually be made up -- it is not lost forever. Thus, awarding the producer-seller the full lost profit on the sale that the contract should have been performed is probably overcompensatory.
In theory, in such a case, the true measure of recovery should be the difference between (1) the price at which the final sale or sales made possible by the breach are made and (2)(a) the contract price of the breached contract plus (b) the use value of the profit lost as a result of the breach measured from the time performance should have occurred under the breached contract until the time the substitute sales are made.
Stated another way, the seller's true loss is not the full profit on the breached contract, but rather the use value of that profit between the time of the breached contract and the time of the substitute sale (plus any difference between the price of the breached contract and the price of the substitute contract).
The difficulties inherent in this measure should be apparent. If the trial occurs prior to the time reserves are exhausted, it will be difficult to tell when the final sale (or other substitute sale) is likely to be made. It will also be nearly impossible to determine at what price it will be made and what interest rate should be applied to determine use value.
In such a case, I think it appropriate for the court to simply follow Section 2-708(2) and award the lost profit, despite the fact that it might be somewhat overcompensatory. There are a number of reasons for this conclusion. First, if the seller has sufficient quantity to supply customers long into the future, there will not be a significant difference between awarding a lost profit measure and awarding the measure provided above. At some point, the present value of the lost profit will equal the interest that could have been earned on the profit had it been invested at the time of performance. In addition, because of litigation expenses and other costs related to the dispute, potential for some overcompensation should not be too worrisome. Finally, the costs involved in estimating the variables in the above formula will often be tremendous.
All of this is by way of illustrating how difficult the choice between Sections 2-708(1) and 2-708(2) might be in a particular case. The polar cases are fairly easy; where the breach makes a sale immediately possible that would not have been possible but for the breach, the contract market differential is clearly appropriate.
On the other hand, where the seller's supply is, for practical purposes, inexhaustible, lost profits should be the appropriate measure. The cases in between are the ones in which courts are going to struggle.
In these cases, if a court is so inclined, it can account for these factors by manipulating the profit it allows the seller under Section 2-708(2). It could, for example, place the burden on the buyer to establish that the seller's lost profits will be recouped in a sufficient period and that a deduction be made from the profit figure. Where appropriate, a deduction from the full profit could be made as a "proceed of resale under 2-
708(2)."
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It could also allow for lost profits in all cases where a calculation made in the manner suggested above would be too speculative.
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There are no cases that are very helpful in resolving this problem,
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and it has largely been overlooked by the commentators.
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This discussion, however, should be sufficient to alert lawyers to the treacherous shoals that may lie ahead.
[3]--Determination of Market Damages.
Even when it is clear that the appropriate formula for computing damages is found in Section 2-708(1), serious problems remain in computing market damages for repudiation of long-term supply contracts. The primary focus of this subsection is the difficulty of determining a market price when a contract, with many years of its term remaining, is repudiated by the buyer.

Section 2-708(1) measures the market price at the time and place performance is to be tendered.
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In a transaction involving one delivery, or an installment contract covering a relatively short period, determining the market price is often easy since the time for performance will have passed before trial. In a long-term gas supply contract, covering perhaps 20 years, determining the market price at the time of tender (delivery) can be very difficult. For example, suppose that the buyer repudiates in the third year of a twenty year contract. The seller sues the buyer and the court is called on to determine the market price at the time and place of tender of each installment for the remainder of the contract in order to calculate the market/contract differential. Given what has occurred with natural gas prices over the past 20 years,
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this would be a highly speculative endeavor. There is no reliable way to determine what the market price will be 10, 15, or
20 years out. It depends on such things as the evolution of federal energy policy, the development of technology, the development of alternative energy sources, the effect of environmental regulations, developments in world affairs, and many other unpredictable variables.
One response might be to disallow any damages based on the market/contract difference on the ground that determining the market price over a long period of time is too speculative. A significant number of cases have denied the recovery of lost profits over an extended period because of the great uncertainty in projecting profits over an extended period.
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In fact, it has been suggested that generally the outside period for which many courts will grant lost profits is 10 years.
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Because of the volatility of gas prices over long periods, determining the contract/market differential would often involve similar uncertainties.
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Courts could respond by simply denying recovery for periods for which the court feels determination of the market price is too speculative.
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The Code, however, provides an apparent answer in Section 2-723. Section 2-723(1) provides:
If an action based on anticipatory repudiation comes to trial before the time for performance with respect to some or all of the goods, any damages based on market price (Section 2-708 or Section 2-713) shall be determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation.
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A cursory reading of this Section might suggest that the appropriate market price is the spot market price at the time the seller learned of the buyer's repudiation. This is precisely how one noted commentator has read the provision.
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This would, of course, generally result in large damages since the very reason that the buyer is repudiating is that the price in the long-term contract has become disadvantageous relative to the present spot market.
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It would also be likely to bear little relationship to the actual damages suffered as a result of the breach, since the present spot market price in an historically volatile market may bear little relationship to the average spot market price over the remaining length of the contract.
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A closer reading of Section 2-723 and the accompanying comments do not mandate this interpretation. The relevant language of Section 2-723 requires that damages be computed on the basis of "the market price . . .
of such goods prevailing at the time the aggrieved party learned of the repudiation." The language "the market price of such goods" does not necessarily mean the spot market price. The other alternative is the market price for a similar forward contract prevailing at the time of the repudiation. There is nothing in the language of the Section or its legislative history that precludes this interpretation;
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the market price for a forward contract is also a "market price of such goods."
Further, the Official Comment to the Section makes it clear that the Section is to be applied flexibly. It states: "This Section is not intended to exclude the use of any other reasonable method of determining market price or of measuring damages if the circumstances of the case make this necessary."
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This would

certainly allow the use of a market price that is not inconsistent with the language of the Section, as it appears even to sanction measures that are inconsistent when it is reasonable to do so.
Professor Thomas Jackson makes a very persuasive case that the appropriate measure is the market price for a forward contract.
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While the specifics of his argument are too complex to explore in this Chapter,
Jackson provides a sound economic analysis for choosing the market price for a forward contract over the spot market price in measuring a seller's damages, whether the spot market price is measured at the time of the buyer's repudiation or at the time of delivery.
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In addition to Professor Jackson's argument, there are other sound reasons to choose the market price for a forward contract. Oversimplified, the price for a forward contract is the market's best guess as to what the market price of the goods will be at the time of delivery.
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The spot market price reflects current market conditions, not those anticipated in the future when deliveries would have been made under the contract.
Because contract damages are designed to compensate the aggrieved party as closely as possible for its actual loss,
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the forward contract price, rather than the spot price, should be used to calculate the market/contract differential under Section 2-708(1). While this may result in smaller damages to the seller than the spot market price,
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it is the appropriate measure.
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The single reported case confronting this issue is Manchester Pipeline Corp. v. Peoples Natural Gas Co .
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Manchester involved a 10 year gas supply contract. The buyer breached after the first year of the contract without taking any gas. The seller brought suit. At trial, the jury was instructed to determine damages for years 2 through 10 of the contract on the basis of the market price for gas at the time and place in the future when delivery of the gas would have been made. Damages were awarded in the amount of $1,450,000.
The Tenth Circuit reversed the district court's instruction on damages. The Circuit Court relied on Section 2-
723,
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stating that it saw no reason to depart from that Section's mandate to measure damages at the time of repudiation rather than the time of performance.
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It quoted from the Oklahoma Code Comment to
Section 2-723 that by measuring damages at the time of repudiation, "the jury need not `speculate by attempting to predict what the future market value will be.'"
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Thus, the court concluded that damages should be measured at the time of repudiation, not the time of performance.
The court noted, however, that the evidence and arguments of the parties had focused on the spot market price of the gas, not on the price for a similar forward contract. The court said that this was improper;
Manchester's damages should be measured by the price of a similar long-term contract.
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In recognizing both the volatility of the natural gas spot market and the fact that long-term contracts often contained terms not found in spot market contracts, which might also affect the difference in price of the two contracts, the court found use of the spot market price inappropriate.
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The decision of the court should be applauded. The court understood that forward price is the market's best guess as to the price of the good at the time of delivery.
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There is no reason to believe that a jury is more capable, even with expert help, than the market itself to forecast the future market price.
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The court understood that the presence of different terms in spot and long-term contracts will generally affect price, and that spot prices have been historically volatile, thus making the spot price particularly unsuitable as a measure of the future market price.
It would be comforting if the insights of economics and the Manchester case resolved the problem of measuring damages for breach of long-term supply contracts. Unfortunately, of course, they do not. A number of other problems remain. First, the state of the market at the time of repudiation may be such that

few long-term supply contracts are being offered in the market and, therefore, there is an insubstantial basis for comparison. This appears to describe, in large part, the state of the recent market in the natural gas industry, where spot and short term contracts appear to be the order of the day.
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Second, it may be even more difficult to find long-term contracts that are not only similar in duration but contain comparable collateral terms as well. There appears to be a great deal of variety in contract terms in long-term gas purchase contracts,
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even those with similar durations. Perhaps most difficult, some long-term contracts will have a price that is, itself, somehow indexed to the future market price,
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which takes us back to square one.
There is, of course, no magic formula to resolve these problems. It is clear, however, that they should not preclude recovery. Over the past three decades, courts have become increasingly willing to grant recovery of lost profits for breach of long-term contracts over the objection that these damages are too speculative.
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The so-called "new business" rule which prevented the recovery of future profits for new businesses, has almost completely disappeared.
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Courts have permitted lost profits to be established by many different kinds of evidence, including profits from similar
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(and not so similar)
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businesses, prior track records of the participants, and, sometimes, largely on the basis of expert testimony.
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A number of recent decisions have indicated that, so long as the plaintiff presents the best evidence available under the circumstances and there is some basis on which to estimate damages, the issue of damages should go to the jury.
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These developments contain a number of lessons for the recovery of damages in the context of long-term gas supply contracts. First, the seller's lawyer must insure that whenever the buyer makes a plausible claim that market/contract damages are speculative, he or she gathers the best evidence under the circumstances to support the claim of damages. Second, it is unlikely to be necessary in proving damages that there be a precise replica of the breached contract available in the market. If similar forward contracts can be found and expert testimony provided as to how any differences might impact on price, a sufficient basis should be established under current law for proving damages. Similarly, even if contracts of the same duration are few in the market, forward contracts of similar duration should be sufficient, particularly when it can be shown, by expert testimony or otherwise, that the contracts are otherwise reasonably comparable.
[4]--Action for the Price.
In certain instances, the Code permits a seller to recover the price of the goods which are the subject of a breach by the buyer. Section 2-709(1)
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is the governing provision and permits the recovery of the price in three instances: (1) when the buyer has accepted the goods and failed to pay for them, (2) when conforming goods are lost or damaged within a commercially reasonable time after the risk of loss has passed to the buyer, and (3) when the seller is unable to resell the goods at a reasonable price after making reasonable efforts to do so. With respect to gas purchase contracts, for obvious reasons (2) and (3) will rarely be applicable. Natural gas is not the kind of good which is very often lost or damaged after the risk of loss has passed to the buyer,
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nor is it the kind of unique or specially manufactured good to which (3) is generally applicable. Thus, Section 2-709 will apply almost exclusively in those cases where the buyer has already taken gas under the contract.
Assuming that the buyer has taken delivery of gas under a contract and failed to pay the agreed price, application of Section 2-709 should not present serious difficulty. The price will have been stipulated in the contract or, if the price was to be ascertained by some market index, the index usually can be consulted without difficulty. If the contract was one that left the price to be agreed on by the parties, and an agreement had not been reached prior to delivery, the court can set a reasonable price.
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If the parties intended to be bound by the contract, the fact that they "agreed to agree" on the price later will not render the contract

unenforceable.
One area of controversy is whether the seller has the right to recover the price under a take-or-pay contract
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when the buyer refuses to pay the price for gas not taken. Because the buyer has not taken delivery of the gas, Section 2-709(1) is, by its terms, inapplicable. In addition, subsection (3) is inapplicable because courts have generally held that natural gas is not identified to the contract until extracted.
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Yet, under the express terms of the contract, the seller is entitled to the price regardless of whether the buyer actually takes delivery of the gas. A brief discussion of a recent case will illustrate the problems courts have encountered dealing with this issue.
In Prenalta v. Interstate Gas Co.,
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the contract had a take-or-pay provision that required the buyer to take a minimum of 1,000 Mcf of gas per day for each 7.3 Mcf of committed reserves attributable to the contract wells. If the buyer did not take this quantity, it was obligated to pay the seller the price for the difference between the minimum amount and the amount actually taken. The buyer then had five years to "make-up" gas paid for but not taken by ordering quantities in excess of the minimum.
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The buyer did not take the minimum quantity required and refused to pay the price under the take-or-pay provision of the contract.
The seller sued.
The trial court rejected the seller's claim on the basis that the seller had failed to plead the proper measure of damages. It said that the U.C.C. applied to the case and that the seller was seeking the contract price for the goods. However, according to the trial court, the remedy for the price under the Code was found in Section
2-709, which was inapplicable to the facts of the case. Rather, any remedy should be measured under
Section 2-708(2),
(85)
which allows for the recovery of lost profits, and which had not been pleaded by the seller. The court then found for the buyer on the basis of the seller's failure to plead the proper basis for recovery of damages.
The Tenth Circuit reversed the district court, probably reaching the correct result, but doing so in a confusing and contradictory manner. The court began by accepting the plaintiff's argument that the take-orpay provision constituted a contractual remedy for breach.
(86)
It stated that, under Section 2-719 of the
Code, contractual remedies were generally enforceable, and may serve to limit or alter the measure of damages recoverable under the Code.
(87)
It cited authority to the effect that take-or-pay clauses were enforceable and briefly considered the economic reasons for their inclusion in contracts. The court, however, did not explain why it considered the relevant provision to be a remedy for breach when the language of that provision made no mention of breach or remedy but, rather, seemed to be a statement of the buyer's performance obligations.
The defendant argued that, if the provision was a contractual remedy for breach, it should be subject to
Section 2-718
(88)
and unenforceable as a penalty. The defendant was clearly correct in arguing that the provisions of Section 2-719 are subject to scrutiny under Section 2-718, which regulates the liquidation of damages. The introductory phrase of Section 2-719 specifically contains a proviso making contractual remedies subject to Section 2-718.
(89)
However, rather than examining the provision under the strictures of
Section 2-718, as it properly should have done, the opinion takes a very odd twist.
The court spent the next two pages discussing the take-or-pay provision as if it described alternative performances , rather than providing remedy for breach. In fact, in the very next paragraph after the court's unequivocal statement that the provision constituted a contractual stipulation of remedy, the court stated that the provision provided for alternative performance rather than for liquidated damages.
(90)
After quoting
Professor Corbin's treatise on the issue, the court restated this conclusion: the proper measure of damages for breach of the "pay" alternative is the payment called for by the contract.
(91)

While it has been long recognized by prominent contracts scholars that it is often difficult to distinguish between a provision for liquidated damages and a contract providing for alternative performances,
(92)
it is clear that the two are mutually exclusive . A term either liquidates damages in the event that a party is in breach or it provides alternative methods of performing, thus avoiding breach . Since a party cannot be in breach and not in breach at the same time, a provision cannot both provide for liquidated damages (or any remedy for breach) and be an alternative performance term at the same time.
Further, assuming the provision is one calling for alternative performances rather than liquidated damages, the court never indicated which Section of the Code it relied on in awarding damages for the failure to pay for the gas not taken. It had earlier concluded that the contract was one for the sale of goods and, therefore, governed by the Code, including, presumably, the remedial provisions. Yet in awarding the price for the gas not taken, it did not mention which Code Section, if any, permitted this recovery. If Section 2-708(2) is the appropriate Section,
(93)
the trial court decision may have been correct since recovery under this Section had not been pleaded.
Apart from its inherently contradictory analysis, the end result in the case is unexceptional. The great majority of reported cases have held take-or-pay clauses valid
(94)
despite attack on a host of grounds,
(95) including that they are unenforceable penalties.
(96)
Further, most cases seem naturally to assume that the appropriate measure of damages is the agreed price for the gas not taken -- the measure adopted in
Prenalta .
(97)
What makes the Prenalta case otherwise interesting is its failure (or inability) to ground this measure of damages in an appropriate provision of the U.C.C., despite the court's recognition that the contract was governed by the U.C.C. Actually, there are a number of ways in which this might be done, some better than others.
First, contrary to the interpretation of most cases, the take-or-pay provision might be viewed as a liquidated damage clause. According to Professor Corbin
(98)
and other contract authorities,
(99)
whether a contract calls for alternative performances or attempts to liquidate damages is a matter of the objective intention of the parties. Particularly if the contract provides no "make-up" period,
(100)
a court could construe the provision as one liquidating damages. Even when construed as a liquidated damage term, however, take-or-pay provisions should generally be upheld.
Many cases have recognized the sound economic reasons that a buyer might want to enter into a take-orpay contract.
(101)
It guarantees the supplier a dependable cash flow in return for (often) exclusively dedicating its output to the buyer; it assures the buyer a minimum supply. These contracts generally involve parties of equal bargaining strength and sophistication. If, in this context, the parties choose this measure as an estimation of damages, it should at least presumptively be considered to be reasonable.
Courts are becoming less inclined to scrutinize liquidated damage clauses where there is likely to be no impairment in the bargaining process.
(102)
Recent scholarship has advocated sound economic reasons for their enforcement in freely bargained agreements.
(103)
While it may be true that, in some situations, enforcement of take-or-pay provisions will result in overcompensation because the gas that was not taken can now be sold to others,
(104)
often it will take the seller some time to dispose of the quantity of gas not taken in an alternative market, thus losing the benefit of the cash flow for this period. In addition, it is likely that the market price has dropped dramatically if the buyer decides to forego taking the gas at all, rather than taking it and reselling it or assigning its contract rights to the gas at a discount. Thus, damages measured by traditional formulas are likely to be high in any event. Further, it is possible (perhaps likely, given the buyer's decision to repudiate the contract) that, even if the contract had continued, the buyer would not have
"made up" the gas and that gas could have been sold twice in any event. These factors, coupled with the

transaction costs of disposing of the gas on the market, will likely make the provision a reasonable estimation of damages.
It is much more likely that, if it is properly drafted, the provision will be interpreted as an alternative performance term rather than a liquidated damage clause. The great majority of courts have reached this conclusion.
(105)
So interpreted, what is the U.C.C. authority under which damages can be given equal to the price of the gas not taken?
Section 2-709 is unlikely to provide a basis for recovery. Only if the failure to pay for gas not taken constitutes a partial breach and there has been no repudiation of the contract by the buyer, might Section 2-
709 provide a basis for recovery for the gas not taken. The seller can argue that the exclusive nature of the contract and the requirement that the seller permit the buyer to take the gas at a later date, usually within five years, prevents the seller from being able to sell the gas with reasonable effort at a reasonable price.
(106)
However, as previously mentioned, Section 2-709(3) requires that the goods be identified to the contract. Thus, recovery under Section 2-709 is problematic even when the seller is precluded from otherwise disposing of the gas (which is unlikely to be the case in the event of a repudiation).
(107)
Section 2-708(2) provides a more promising basis for recovery of the price for gas not taken. Section 2-
708(2) permits the recovery of lost profits by an aggrieved seller.
(108)
It can be argued by the seller that its profit on the contract should be measured by the price of the gas not taken, since under the contract the seller is entitled to the price for the contractual minimum whether or not the buyer actually takes any gas.
By repudiating the contract, the buyer has disabled itself from taking any gas in the future or making up gas not taken in the past.
(109)
Because of that repudiation it cannot now be known whether the buyer would have taken gas in the future or made up for past deficiencies. Since the buyer's own act of repudiation has created this uncertainty, one should not assume that the buyer would have taken gas in the future or made up prior deficiencies as this assumption might result in undercompensation for the seller. Therefore, the seller's lost profits should be measured by the price of the minimum "take" for each year of the contract.
(110)
There are a couple of potential problems with this analysis, although a similar application of Section 2-
708(2) has been suggested by another commentator.
(111)
The first difficulty is that the seller generally has the burden of proving lost profits under the Code.
(112)
This could reasonably be construed to mean that the seller, in order to receive the price for the minimum take for the entire contract as its lost profits, would have to show that the buyer would not have taken gas in the future, nor made up past deficiencies. To the extent that the buyer would have made up past deficiencies or have taken gas in the future, recovery of the price would net the seller more than its lost profits had the contract been performed. Proving that the buyer would not have taken gas in the future or made up past deficiencies might be a difficult burden for the seller to meet.
The other problem with applying Section 2-708(2) is that this Section requires that the buyer be given "due credit for payment or proceeds of resale." While this provision has been ignored when the seller is in the position of a lost volume seller,
(113)
suppliers of natural gas will often not be able to claim this status. If the buyer is given credit for the proceeds of the resale, however, the very purpose of the take-or-pay provision is defeated, in that the seller only recovers the contract/resale differential which would have been available even in the absence of the take-or-pay provision.
An alternative way of looking at a take-or-pay provision is as an option. The essence of the take-or-pay contract, along with the other obligations of the seller,
(114)
is the purchase of an option to buy gas for the period of the contract.
(115)
The price of the option is the agreed on price of the gas. While this appears to be

a high price for an option, in most contracts the option extends for quite a period of time beyond the year that the buyer fails to take the minimum quantity; under current federal regulations, a minimum of five years.
(116)
In addition, if the option is "exercised" and the minimum amount made up at a later time, the price of the option itself turns out to be quite small -- the use value of the funds paid to the seller earlier than they otherwise would have been under a straight sale. Finally, depending on how the contract is structured, the buyer may end up paying below market prices for gas paid for in one year and taken in another.
(117)
If this is the proper way to look at a take-or-pay provision, then the price of the gas not taken is the appropriate measure of recovery. After all, the repudiation of an option is not fundamentally different from a decision not to exercise the option. Of course, the grantor of an option is entitled to the consideration for the option, whether or not the optionee chooses to exercise it.
(118)
The Code, however, does not explicitly deal with option contracts nor with remedies for their breach. Thus, the problem remains how to permit the seller under the Code to recover the price of the minimum take on the buyer's repudiation.
I think the answer is simply that the remedial provisions of the Code were not drafted with options in mind and were not designed to provide remedies for their repudiation. However, both Section 1-103,
(119)
which sanctions the application of common law principles, and Section 1-106,
(120)
which provides for the liberal administration of Code remedies to put the aggrieved party in as good a position as performance, can be used to justify the remedy of the price in a take-or-pay contract.
One final complication -- even if the correct way to view a take-or-pay provision is as an option, and its repudiation as the failure to exercise the option, the full price for all of the gas not taken may be overcompensatory, unless properly discounted. For example, assume a 10 year supply contract, which includes a take-or-pay provision requiring the buyer to take a minimum quantity of gas per year and to pay for any difference between the agreed minimum and the amount taken at the end of the year. The buyer then has five years to "make-up" the amount not taken by taking gas over the agreed minimum.
In the first two years, the buyer takes the agreed minimum. In year 3, it takes less than the agreed minimum, but refuses to pay for the difference. It then repudiates the entire contract. Under the above analysis, the correct damage figure is (1) the price for the gas not taken in year 3 and (2) the price for the entire minimum quantity not taken for the remaining term of the contract.
(121)
By repudiating, the buyer has declined to exercise its option for the term of the contract but should, nonetheless, be responsible for paying the price.
(122)
However, the price for years 4 to 10 must be discounted at an appropriate discount rate. This money would not have been received until future years and should not presently be recoverable in a lump sum, without proper discounting.
In evaluating this result, a number of things should be kept in mind. In agreeing to the take-or-pay provision, the buyer was guaranteed a reliable supply at a reliable price. In addition, it is possible that other terms of the contract were more favorable to the buyer than they otherwise might have been as a result of its willingness to bear the risk of the take-or-pay provision.
(123)
If there were, in fact, some gross inequality in the bargaining process, the doctrine of unconscionability is available to police the bargain.
(124)
The buyer's alternatives, of course, are either to avoid entering into contracts with these provisions or to avoid repudiating them.
[5]--Specific Performance or Periodic Payments.
There are two related alternatives to recovery of damages in one lump sum at trial: either (1) enjoining the buyer from breach, thus forcing the buyer to purchase the gas from the seller under the contract, or (2) requiring the buyer to pay damages based on the contract-market differential throughout the term of the

contract.
A full consideration of these alternatives is beyond the scope of this paper, but neither of these alternatives, although unusual, should be dismissed out of hand.
There are a number of cases, dating from almost a century ago to the present, in which a long-term supply contract has been specifically enforced because determination of damages was deemed too speculative.
Significant among the older cases is Texas Co. v. Central Fuel Oil Co.
(126)
The case involved a 10 year contract for the supply of crude oil, which appears to have been repudiated by the seller early in the term.
(127)
The buyer sought specific performance, a complaint that was met by a number of objections by the seller. Foremost among them was the claim that damages were adequate at law and that equity should not be called on to supervise a long-term contract.
(128)
The court rejected both objections in terms relevant to the specific enforcement of long-term gas supply contracts.
As to the objection that damages were adequate at law, the court responded that, when damages are too speculative to be proven, an action for specific performance in equity is appropriate.
(129)
Otherwise, the victim of the breach would not be compensated for the damage suffered. As to the claim that enforcement in equity would involve the long-term judicial supervision, the court drew a distinction between contracts involving "skill, personal labor, and cultivated judgment," which are likely to give rise to continuing disputes between the parties, and contracts where these problems are unlikely to arise between parties operating in good faith.
(130)
The court said that the seller's only obligation was to deliver all the oil produced, up to 540,000 barrels per month for a period of 10 years. The pipelines were already in place and had sufficient capacity. Since the obligations of the parties were simple and unambiguous, and required no
"skill, personal labor, or cultivated judgments," specific performance was appropriate.
(131)
At the other end of the time spectrum, a recent case from the Supreme Court of Ohio again makes the point that specific performance of a long-term contract is appropriate when determination of damages is too speculative. In Oglebay Norton Co. v. ARMCO, Inc.
,
(132)
the court upheld the exercise of equitable jurisdiction to order specific performance of a contract having a 30 year term with more than 20 years remaining.
In 1957, ARMCO and Oglebay entered into a contract in which Oglebay agreed to ship iron ore for
ARMCO. The price under the contract was to be "the regular net contract rate for the season as recognized by the leading iron ore shippers" or, if there were no such rate, the parties were to "mutually agree upon a rate." The contract was extended in 1980 to run until 2010.
In 1984, the parties were unable to agree on a mutually satisfactory rate. Oglebay billed ARMCO $7.66 per gross ton, while ARMCO refused to pay more than $5.00. The following year they again failed to reach a mutually satisfactory rate. In April, 1986, Oglebay sued, requesting the court to affirm the rate it had been charging ARMCO or, in the alternative, to determine a reasonable rate. Despite the lawsuit, Oglebay continued to ship iron ore for ARMCO until the following year when ARMCO sought a declaration that the contract was no longer enforceable.
The trial court found that the parties had intended to be bound, despite the failure of the pricing mechanism, and found that a reasonable price for the 1986 season was $6.25 per gross ton. In addition, the court ordered that the contract be specifically performed and ordered the parties to negotiate or, on the failure of negotiations, to mediate each annual season throughout the term of the contract. Thus, the court required that the contract be performed for the next 24 years.
ARMCO objected to the order of specific performance. The Ohio Supreme Court rejected this position, stating that specific performance was necessary because the volatility in market prices of Great Lake shipping rates and the length of the contract made it impossible to award Oglebay accurate damages.
(133)

The parallels to long-term gas contracts are apparent. The volatility of the spot market makes it an obviously unreliable source for determining contract/market damages in a long-term contract.
(134)
Also, the pricing mechanism or other factors in some long-term contracts may make it difficult to determine damages on the basis of a comparable forward contract.
(135)
In these cases, Oglebay suggests that specific performance would be an appropriate remedy, at least where other factors are not present making specific performance unwise.
(136)
The modern trend clearly evidences an increased willingness to exercise equitable jurisdiction.
(137)
The school desegregation cases illustrate the increased willingness of courts to engage in even detailed supervision over long periods in order to supervise an equitable order.
(138)
It is clear that Section 2-716 of the Code is intended to make the remedy more available in commercial cases.
(139)
Finally, there is little doubt that an acceptable basis for an equitable decree is the inability to overcome uncertainty in calculating damages. All of these suggest that specific performance may have a significant part to play in the enforcement of long-term gas supply contracts.
(140)
The final possibility, only briefly mentioned here, is one that is seen even less frequently in the cases as an enforcement mechanism: periodic payment of damages. This differs from a decree of specific performance in that the buyer is allowed to repudiate the contract; it is not forced to perform by paying the price and accepting the goods. Rather, damages are measured in accordance with the appropriate Code Sections but are not measured and awarded until the time for performance has occurred. Thus, under a long-term gas supply contract, damages would be measured and paid periodically as information (presumably about the market price) becomes available.
Research indicates few cases in which such awards have been ordered and upheld. In fact, the first objection to them might be that they are not even permissible under the Code. Section 2-610 of the Code permits an aggrieved party to resort to any remedy for breach immediately upon the repudiation of the contract by the other party.
(141)
Further, Section 2-723 clearly contemplates a recovery of contract/market damages prior to the time of performance.
(142)
There is no indication anywhere in the Code that the drafters contemplated delaying the collection of damages until the time for performance in the event the suit was brought prior to that time.
Furthermore, although the common law rule measured a seller's damages as of the time for performance, in cases of anticipatory repudiation, damages for breach were awarded at trial despite the fact that the time for performance had not yet arrived.
(143)
There is exceedingly sparse authority in Anglo-American law generally for periodic payments of damage awards measured and paid after the time of trial.
(144)
Nonetheless, there are a number of statutory schemes that validate periodic payments of damages
(145)
and a few recent cases have begun to explore them as alternatives to the traditional lump sum payment.
(146)
In fact, because incentive problems present in tort cases are not present in most contract cases,
(147)
they may be more appropriate in contract than in tort, the area in which most experimentation has occurred.
(148)
Certainly, the periodic determination of market based damages would not impose too great a burden on courts, given the relative lack of difficulty determining market based damages under the Code has presented to courts thus far.
(149)
A full evaluation of this possibility will, however, have to await further scholarship.
§ 23.04. Conclusion.
The presence of some difficult, perhaps even intractable, problems in measuring damages for breach of

long-term supply contracts should not be surprising. The dislocations in the market caused by political events, both internal and external, unpredictable, uneven, and inefficient regulation, the rise and fall of alternative energy sources, and even natural events make future predictions of the market sometimes little better than guesswork. Nonetheless, some approaches are better than others. A working knowledge of both the practice and the theory of the U.C.C. damage provisions is an essential starting point. This Chapter has attempted to do that, as well as to begin the process of resolving some of the more difficult problems.
1. * My thanks to my colleagues, Mike Braunstein and Al Clovis, for their helpful comments on prior drafts. I am also grateful for the research assistance of Greg Russell and Lakesia Johnson.
2. 1. Order No. 636, "Pipeline Service Obligations and Revisions to Regulations Governing Self-Implementing Transportation under
Part 284 of the [Federal Energy Regulatory] Commission's Regulations," 59 FERC Rep. Stats. & Regs.
¶ 30,939 (1992), as amended by Order No. 636-A, 60 FERC Rep. Stats. & Regs.
¶ 61,103 (1992). [For a comprehensive discussion of Order No. 636, see P.G.
Esposito, "FERC's Order No. 636: Restructuring the Legal Relationship Underlying Natural Gas Sales in the United States," 13
Eastern Min. L. Inst.
ch. 15 (1992) -- Ed .]
3. 1. U.C.C. § 2-107 (1978) (emphasis added).
4. 2. See , e.g.
, United Crude Mktg. & Transp. Co. v. Robert Gordon Oil Co., 831 P.2d 659, 661 (Okla. Int. App. Ct. 1992);
American Expl. Co. v. Columbia Gas Transmission Corp., No. C-2-85-266 (S.D. Ohio 1985). [For a discussion of the U.C.C. and gas sales contracts generally, see L.M. McCorkle & T.O. Ruby, "Contracts for the Sale of Gas: A Uniform Commercial Code
Analysis," 7 Eastern Min. L. Inst.
ch. 15 (1986) -- Ed .]
5. 1. U.C.C. § 2-703.
6. 2. The Section is applicable whenever a buyer (1) wrongfully rejects or revokes acceptance of goods, (2) fails to make a payment due on or before delivery, or (3) repudiates with respect to all or part of the goods under contract.
7. 3. Long-term gas purchase contracts are "installment contracts" under § 2-612 of the Code. Kennedy & Mitchell, Inc. v.
Internorth, Inc., 1988 U.S. Dist. LEXIS 17106 (N.D. Okla. 1989). Under § 2-612(3), a breach with respect to one or more installments must "substantially impair the value of the whole contract" to be a breach of the whole contract, as opposed to a breach with respect to only an installment or installments. Only if there is a breach of the whole contract is a seller entitled to cancel the contract and bring an action based on the entire undelivered balance. In Kennedy & Mitchell , the court refused to find, as a matter of law, that the failure to comply with its contractual obligations for 3 years on a contract with 15-20 years remaining constituted a breach of the whole contract. Id . at 17.
8. 4. Under the provisions of § 2-610, the seller is entitled to bring an immediate action for breach despite the fact that the time for performance is not yet due. This is consistent with general contract doctrine since the case of Hochster v. De la Tour , 2 Ellis & Bl.
678 (1853).
9. 5. Both the contract/market differential and the lost profits measures of damages are in § 2-708.
10. 6. U.C.C. § 1-106.
11. 7. T.H. Jackson, "`Anticipatory Repudiation' and the Temporal Element of Contract Law: An Economic Inquiry into Contract
Damages in Cases of Prospective Nonperformance," 31 Stan. L. Rev.
69, 101 n. 106 (1978) [hereinafter cited as Jackson].
12. 8. U.C.C. § 2-712.
13. 9. U.C.C. § 2-706.
14. 10. J. White & R. Summers, Uniform Commercial Code § 7-6 at 347 (3d ed. 1989) (Practitioner's ed. vol. 1) [hereinafter cited as White & Summers].
15. 11. In addition to the contract/resale differential, § 2-706(1) also permits recovery by the seller of incidental damages. These damages are provided in § 2-710; they include "any commercially reasonable charges, expenses or commissions incurred in stopping

delivery, in the transportation, care and custody of goods after the buyer's breach, in connection with the return or resale of the goods or otherwise resulting from the breach." U.C.C. § 2-710.
16. 12. MMBTU is one million British Thermal Units, a measurement of the heating value of natural gas.
17. 13. Discussed in the text, infra , at § 23.03[2], [3], & [4].
18. 14. U.C.C. § 2-706(2).
19. 15. See Servbest Food, Inc. v. Emessee Indus., Inc., 403 N.E.2d 1 (Ill. Int. App. Ct. 1980).
20. 16. See text, infra , at § 23.03[3].
21. 17. U.C.C. § 2-708(1). This subsection provides in full:
Subject to subsection (2) and to the provisions of this Chapter with respect to proof of market price (Section 2-723), the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Chapter (Section 2-710), but less expenses saved in consequence of the buyer's breach.
22. 18. Jackson at 101; E.A. Farnsworth, Contracts § 12.12 at 902 (2d ed. 1990).
23. 19. See text, infra , at §23.03[3].
24. 20. But see R.E. Scott, "The Case For Market Damages: Revisiting the Lost Profits Puzzle," 57 U. Chi. L. Rev.
1155 (1990).
25. 21. See Ritz Cycle Car Co. v. Driggs-Seaburg Ordnance Corp., 237 F. 125 (S.D. N.Y. 1916); Brunswick-Balke-Collender Co.
v. Wisconsin Mat Co., 24 F.2d 78 (7th Cir. 1928).
26. 22. See White & Summers at § 7-9 n.1.
27. 23. U.C.C. § 2-708(2).
28. 24. Professors White and Summers use four categories to describe those who are entitled to lost profits under 2-708(2). White &
Summers at 357-365. The first is the lost volume seller who sells completed goods on the market and loses a sale as a result of the buyer's breach. The second is the "components seller" who agrees to manufacture or assemble the contract goods, but ceases manufacture prior to completion. The third category is the "jobber" or a "middleman" who never acquires the contract goods. As the text points out, the underlying premise in all three cases is that the seller has made one fewer sale as a result of the buyer's breach.
Professors White and Summers also have a fourth category -- "other cases" -- that does not depend on the "lost volume" concept. It is unclear, however, whether cases in this category are already adequately covered by §§ 2-706 and 2-708(1).
29. 25. R. Nordstrom, The Law of Sales § 177 (1972).
30. 26. On one side are those who seek to severely limit the application of the lost profits principle. See , e.g.
, C.J. Goetz & R.E.
Scott, "Measuring Seller's Damages: The Lost Profits Puzzle," 31 Stan. L. Rev.
323 (1979) [hereinafter cited as Goetz & Scott]; R.E.
Scott, "The Case for Market Damages: Revisiting the Lost Profits Puzzle," 57 U. Chi. L. Rev.
1155 (1990); Comment, "A Theoretical
Postscript: Microeconomics and the Lost Volume Seller," 24 Case W. Res. L. Rev.
712 (1973). On the other side are those who argue, on various grounds, for an expansive application of the lost profit measure. See R. Childres & R.K. Burgess, "Seller's Remedies: The
Primacy of U.C.C. 2-708(2)," 48 N.Y.U. L. Rev.
833 (1973); V.P. Goldberg, "An Economic Analysis of the Lost Volume Retailer,"
57 S. Cal. L. Rev.
283 (1984) [hereinafter cited as Goldberg]. This selection of articles is by no means complete.
A full discussion of this ongoing controversy is beyond the scope of this Chapter. See White & Summers at § 7-14 for a short, but excellent, summary of the economic arguments; and see , infra , § 23.03[3] at n. 35.
31. 27. A LEXIS search in the U.C.C Reporter using the terms "natural gas" and "2-708" revealed only 11 cases, most of which were not helpful in understanding the application of § 2-708.

32. 28. 887 F.2d 242 (10th Cir. 1989).
33. 29. See , supra , § 23.03[2] at n. 25.
34. 30. See , e.g.
, Copymate Marketing, Ltd. v. Modern Merchandising, Inc., 660 P.2d 332 (Wash. Int. App. Ct. 1983).
35. 31. 845 F.2d 575 (5th Cir. 1988).
36. 32. U.C.C. § 2-708(1). This conclusion assumes that the seller has suffered no incidental damages.
37. 33. It appears that the seller may have some control over when the lost sale is "made up." By adjusting the price for widget 4 downward, the seller may be able to sell it to a customer who would not otherwise have purchased from this seller. This assumes, however, that the seller has the ability to price discriminate among its buyers. Otherwise it will be restrained by the loss in total revenues that an overall price cut would entail. More importantly, if the seller had the ability to price discriminate, and nonetheless sell above its marginal cost, it would do so whether or not the buyer performed its contract. Were the seller to sell below his marginal cost, damages under section 2-706 would exceed those recoverable under § 2-708(2). Thus, the seller's ability to "speed up" the replacement sale through price manipulation is more apparent than real. See Goetz & Scott at 332 n.26.
38. 34. Under what circumstances this can occur lies at the heart of the economic criticism of the lost profit measure of damages. In a competitive market, the price of a product will be equal to the marginal cost of producing that product. Assuming a producer at some point will face a rising marginal cost curve, it will not produce a quantity greater than that produced where marginal cost is equal to the price it received for the product. In simple terms, a seller will not produce a product that costs it more to make (or market) than it can sell the product for.
As a consequence, when a buyer breaches a contract, the seller is afforded the opportunity to make a sale that it would not otherwise have made because the marginal cost would have been too great. Even if the market is not perfectly competitive and its price is greater than marginal cost, if the seller faces a rising marginal cost curve, it will not lose a "full" (average) profit on the sale because the breach allows it to produce for the next buyer at a lower marginal cost than would have otherwise been the case.
For a full explication and more sophisticated economic analysis, see Goetz & Scott. For a suggestion that the analysis of Goetz &
Scott is inapplicable in some markets, see V. Goldberg; R. Cooter & M. Eisenberg, "Damages For Breach of Contract," 73 Calif. L.
Rev.
1433 (1985).
39. 35. Any recoupment could be deducted as an expense saved by the breach under § 2-708(2).
40. 36. See U.C.C. § 1-103.
41. 37. In Colorado Interstate Gas v. Natural Gas Pipeline Co. of Am., 661 F. Supp. 1448 (D. Wyo. 1987), the court was confronted with a choice between §§ 2-708(1) and 2-708(2). Because the plaintiff was a transporter of gas rather than a producer and was unable to transport gas during the contract period because defendant had plaintiff "shut-in," it was clear that the plaintiff had lost the opportunity to transport gas during this period and application of § 2-708(2) was appropriate. The case involved none of the complexities discussed above.
42. 38. This is because the models in the existing literature generally ignore the timing of replacement sales and, instead, concentrate on whether there is a replacement sale and at what price.
43. 39. U.C.C. § 2-708(1).
44. 40. See J.H. Medina, "The Take-or-Pay Wars: A Cautionary Analysis for the Future," 27 Tulsa L.J.
283, 286-88 (1991)
[hereinafter cited as Medina]; A.F. Brooke, Note, "Great Expectations: Assessing the Contract Damages of the Take-or-Pay
Producer, 70 Tex. L. Rev.
1469, 1470-74 (1992) [hereinafter cited as Brooke]; Manchester Pipeline Corp. v. Peoples Natural Gas Co.,
862 F.2d 1439 (10th Cir. 1988).
45. 41. See 1 R. Dunn, Recovery of Damages for Lost Profits § 6.13 (4th ed. 1992) and cases cited therein. While forecasting lost profits and future market prices are not equivalent, future profits are obviously highly dependent on future market conditions. If future market conditions could be forecast with precision, much of the difficulty of forecasting lost profits would be removed.

46. 42. See Commercial Damages: A Guide to Remedies in Business Litigation , § 22.06[2] at 22-17 (Knapp ed. 1992).
47. 43. See , supra , § 23.03[3] at n. 40.
48. 44. Cf . Tampa Elec. Co. v. Nashville Coal Co., 214 F. Supp. 647 (M.D. Tenn. 1963) (court adopted presumption that contract price and market price would be equivalent over long-term contract to avoid problems of speculativeness).
49. 45. U.C.C. § 2-723.
50. 46. See Jackson at 104. Professor Jackson is not clear why he draws this conclusion. In any event, he believes § 2-723 is wrong in using the spot market price. See text, infra , at §22.03[3] n. 50.
51. 47. See , e.g.
, Friedman Iron & Supply v. J.B. Beaird Co., 63 So. 2d 144 (La. 1952), 1st rhg.
, 63 So. 2d 149 (La. 1952), 2d rhg.
, 63 So. 2d 151 (La. 1952).
52. 48. It is true, however, that the buyer must expect that the spot market price will remain low for a significant portion of the remaining period of the contract. Otherwise, a rational buyer would not repudiate the contract in the first place.
53. 49. While it is always with some trepidation that one concludes the existence of a negative, my research, that of my student research assistant, and the assistance of a very capable reference librarian has turned up nothing.
54. 50. U.C.C. § 2-723 official comment.
55. 51. Jackson at 82-98.
56. 52. Greatly simplified, Jackson's argument is that using the spot price to measure damages has the potential to deter efficient breaches. Therefore, it is not the measure that the parties themselves would adopt if they specifically contracted on the measure of damages. The reasons why using the spot price might deter efficient breach are complex, but they are based on the fact that, in assessing its potential liability, the breaching party cannot capture any benefit of a market change that actually results in a gain to the victim because it can cover (or resell) at a price more favorable than the contract price. Thus, using the spot price will "overdeter" a potential breacher. See Jackson at 94-97, 108-109.
57. 53. While generally accurate, the statement is oversimplified for a number of reasons. First, it does not account for the fact that the money for a forward contract will be received immediately rather than at the time of delivery. Presumably, the seller will be willing to take a lesser price than the projected market price at the time of delivery because he can earn interest on the money in the meantime. Conversely, inflation may wipe out some considerable amount of that gain. The remainder, the "real" time-value of money, will unlikely be greater than 1-2% per year. Therefore, with these qualifications, it is fair to say that the market price for a forward contract is the market's best guess as to what the price will be at the time of delivery. The forward market price also reflects the aggregate risk adverseness of buyers in the market. See Jackson at 85.
58. 54. U.C.C. § 1-103.
59. 55. This is because the spot market price is likely to be greater than the market price for a forward contract. See Jackson at 95-
96. This will not necessarily be true, however, particularly when there is a temporary "glut" of the commodity on the market. While the market will eventually adjust (i.e., through suppliers holding supplies back to take advantage of the higher forward price) the spot price may be lower than the forward price for a temporary period.
60. 56. But see Medina at 291 n. 22.
61. 57. 862 F. 2d 1439 (10th Cir. 1988).
62. 58. U.C.C. § 2-723.
63. 59. The court relied on the Oklahoma Code Comment to § 2-723, which stated that use of the time of repudiation to measure market damages when the time for performance had not yet arrived has "the virtue of certainty." 862 F.2d at 1447.

60. Id . (quoting Ok. Stat. Ann. tit. 12A, § 2-723 cmt. (1963)).
65. 61. Id . at 1448.
66. 62. Id . The parties settled prior to the hearing on remand.
67. 63. See , supra , § 23.03[3] at n. 53.
68. 64. In fact, there is every reason to believe that a jury of 12 or fewer persons will be unable to forecast the future market price with any degree of accuracy. The forward price represents the interaction of a multitude of market actors, virtually every one having better information about the commodity than the members of a jury. To the extent that a jury simply relies on experts, who base their testimony as to the future market price on the present price for a forward contract, nothing is gained by not using the contract price for a forward contract directly.
69. 65. See 4 W.L. Summers, Oil & Gas Law § 762 (Supp. 1993); Medina at 288 n. 14 (1991).
70. 66. 4 H. Williams, Oil & Gas Law § 720 (1992) (stating that there is practically no standardization in gas purchase contracts).
71. 67. Obviously, if the forward price under the contract is simply measured by the market price at the time of delivery, there should be no contract/market differential for purposes of § 2-708(1). The market price and contract price at the time and place of tender will necessarily be the same. In this case, the only damages would be incidental damages under § 2-710. This would also be the result of a contract containing a "market out" clause permitting the buyer to refuse to take delivery except at the market price. When the price, however, is measured by some premium over the market price, there may be other damages caused by the breach. For example, if the price for gas in the breached contract is 2% over the prevailing market price at the time of each delivery, and the price for a similar long-term contract at the time of repudiation is 1% over the prevailing market price at the time of delivery, the 1% differential will represent damages to the seller that will be difficult to measure without knowing the future market price.
72. 68. See , e.g.
, Super Valu Stores, Inc. v. Peterson, 506 So. 2d 317 (Ala. 1987); Commercial Damages: A Guide to Remedies in
Business Litigation , § 5.04[1] (Knapp ed., 1992). While not technically a recovery of lost profits, the difficulties cited above present the same issue of speculativeness.
73. 69. See R. Dunn, Recovery of Damages for Lost Profits , § 4.2 (1992). While not directly applicable in this context, the demise of the "new business" rule evidences an increasing disfavor among courts to deny damages on the basis of speculativeness or uncertainty.
74. 70. See Cardinal Consulting Co. v. Circo Resorts, Inc., 297 N.W.2d 260 (Minn. 1980).
75. 71. See Fera v. Village Plaza, 242 N.W.2d 372 (Mich. 1976).
76. 72. See Larsen v. Walton Plywood Co., 390 P.2d 677 (Wash. 1964), modified , 396 P.2d 879.
77. 73. Commercial Damages: A Guide to Remedies in Business Litigation § 5.05[2][a] (Knapp ed., 1992).
78. 74. U.C.C. § 2-709(1).
79. 75. I was unable to find a single reported case under the U.C.C. where this had occurred.
80. 76. U.C.C. § 2-305.
81. 77. A take-or-pay contract is one in which the buyer is required to purchase a minimum volume of gas (usually set on an annual basis); if the buyer does not purchase this minimum it must nonetheless pay for it. Typically, deficiencies can be "made up" over some limited future period by taking in excess of the minimum amount. See M. Medina, G. McKenzie, & B. Daniel, "Take or
Litigate: Enforcing the Plain Meaning of the Take-or-Pay Clause in Natural Gas Contracts," 40 Ark. L. Rev.
185 (1987) [hereinafter cited as Medina et al.
].
82. 78. See , e.g.
, Piney Woods Country Life School v. Shell Oil Co., 726 F.2d 225, 234 (5th Cir. 1984) cert. den ., 471 U.S. 1005
(1985); Prenalta Corp. v. Colorado Interstate Gas Co., 944 F.2d 677, 690 (10th Cir. 1991).

83. 79. 944 F. 2d 677 (10th Cir. 1991).
84. 80. The provision read as follows:
4.2 FAILURE OF BUYER TO TAKE CONTRACT QUANTITY. If during any 1 year period, commencing with the 1st day of the month in which initial delivery is made from each well, Buyer shall fail to take the Contract Quantity of gas from such well, then
Buyer shall pay Seller on or before the 20th day of the 2d month of the next following year for that quantity of gas which is equal to the difference between the Contract Quantity and Buyer's actual takes during such period. . . . During the 5 years next succeeding a year in which Buyer has failed to take the gas so paid for, all gas taken by Buyer from Seller which is in excess of the Contract
Quantity of gas for the current year . . . shall be delivered without charge to Buyer until such excess equals the amount of gas previously paid for but not taken . . ..
85. 81. U.C.C. § 2-708(2).
86. 82. "We find that the language of § 4.2 . . . unambiguously expresses the intent of Prenalta and CIG to fashion a specific remedy for breach by requiring CIG to pay the value of the shortfall . . .." 944 F.2d at 677. The court states this conclusion in other places as well.
87. 83. U.C.C. § 2-719.
88. 84. U.C.C. § 2-718.
89. 85. U.C.C. § 2-719(1).
90. 86. "Because one of the alternative performances in a take-or-pay contract is the payment of money, courts have distinguished the
"pay" provision from a liquidated damage provision." 944 F.2d at 689.
91. 87. "Prenalta's damages are therefore measured by CIG's obligation to pay -- the value of which is the contract price in effect at the time such deficiency occurred multiplied by the difference between the contract quantity and the actual quantity of gas purchased for any year . . .." Id . at 690.
92. 88. Professor Farnsworth describes the "tension" involved in interpreting a term as either a liquidated damage clause or one providing for alternative performance. 3 E.A. Farnsworth, Farnsworth on Contracts § 12.18 at 294-95 (1990); 5 A. Corbin, Corbin on Contracts § 1082 at 463 (1964) ("It is evident that some alternative contracts giving the power of choice between the alternatives to the promisor can easily be confused with contracts that provide for the payment of liquidated damages in case of breach, provided that one of the alternatives is the payment of a sum of money.").
93. 89. See text, infra , at 23.03[3] nn. 104-109.
94. 90. See , e.g.
, Medina at 294.
95. 91. See Medina at 293-98 for a brief discussion of each of the many defenses asserted by pipelines against enforcement of takeor-pay contracts. For a more detailed discussion, see Medina et al. at 210-252.
96. 92. See Sabine Corp. v. ONG Western, 725 F. Supp. 1157 (W.D. Okla. 1989); Universal Resources Corp. v. Panhandle E. Pipe
Line Co., 813 F.2d 77 (5th Cir. 1987).
97. 93. See , e.g.
, Colorado Interstate Gas Co. v. Chemco, Inc., 833 P.2d 786 (Colo. Int. App. Ct. 1991); Universal Resources Corp.
v. Panhandle E. Pipeline Co., 813 F.2d 77 (5th Cir. 1987).
98. 94. 5 A. Corbin, Corbin on Contracts § 1070 at 397 (1964 & Supp. 1992).
99. 95. J. Murray, Murray on Contracts § 125D at 714 (3rd ed. 1990).
100. 96. But see 18 C.F.R. § 154.103 (1992) (requiring a make-up period of at least five years in certain contracts).

101. 97. See , e.g.
, Universal Resources Corp. v. Panhandle E. Pipe Line Co., 813 F.2d 77, 80 (5th Cir. 1987); Prenalta v. Colorado
Interstate Gas, 944 F.2d 677 (10th Cir. 1991); Brooke at 1470 and authorities cited therein.
102. 98. See , e.g.
, 3 E.A. Farnsworth, Contracts § 12.18 at 286 (Pract. ed. 1990), and cases cited therein.
103. 99. R. Posner, Economic Analysis of Law § 14.10 at 129 (4th ed. 1992); C.J. Goetz & R.E. Scott, "Liquidated Damages,
Penalties and the Just Compensation Principle: Some Notes on an Enforcement Model and a Theory of Efficient Breach," 77 Colum.
L. Rev.
554, 593-94 (1977); see also , V.P. Goldberg, "Further Thoughts on Penalty Clauses," in Readings in the Economics of
Contract Law 161 (V. Goldberg ed. 1989).
104. 100. This assumes a "total" breach by the buyer (i.e., a breach that permits the seller to declare the contract at an end and eliminates any further obligation on the part of the seller). The breach may be one where the contract continues despite the breach
(i.e., a "partial" breach, or in the language of § 2-612, a breach that does not impair the value of the contract as a whole). See , supra ,
§ 23.04 at n. 2.
105. 101. See Medina at 295-96 and cases cited therein.
106. 102. See U.C.C. § 2-709(1)(b).
107. 103. Under § 2-703 when a buyer repudiates the contract, and the repudiation substantially impairs the value of the whole contract to the seller, the seller is entitled to cancel the contract. As a general matter, this permits the seller to alternatively dispose of the goods. But see infra , § 23.03[4] at n. 120.
108. 104. See text, supra , at § 23.03[2].
109. 105. Interestingly, there have been relatively few cases where the buyer has repudiated and the seller has sought damages for future years of the contract. The producer normally seeks relief only for the pipeline's failure to make deficiency payments already due under the contract, not for its failure to take future gas or for repudiation of future payments. See Medina at 292 n. 25. But see
Koch Hydrocarbon Co. v. MDU Resources Group, 1993 U.S. App. LEXIS 4555 (8th Cir. 1993) (producer brought action for anticipatory repudiation by buyer).
110. 106. This appears to be the measure of damage permitted in Koch Hydrocarbon Co. v. MDU Resources Group , 1993 U.S.
App. LEXIS 4555 (8th Cir. 1993). While the opinion is not clear, an action was brought for anticipatory repudiation in the seventh year of a 20 year contract. The court's discussion and the large amount of damages awarded indicate that damages were measured by the price of the minimum takes for each year remaining on the contract.
111. 107. See Brooke at 1480-1483. The author would require that the buyer be obligated to pay the price for deficiencies that could not be made up over the make up period. On the other hand, the author suggests that damages for deficiencies that could be made up should only be measured by the contract-market differential.
In the event of a repudiation of the contract by the buyer, I do not believe that recovery of the price of the gas not taken should be limited to gas that could not have been made up over the remaining "make up" period. By repudiating, the buyer is, in effect, signaling that it is very unlikely that it would make up the gas not taken. After all, under current conditions, the buyer has refused to taken even the minimum. If it anticipated that the contract would become sufficiently attractive that it would take even more than the minimum over the remaining term of the contract, a repudiation seems unlikely. Thus, I believe the method suggested by Brooke would systematically undercompensate sellers. Brooke does not indicate how damages would be computed on the minimum amount required to be taken in future years when the buyer repudiates prior to the end of the contract period. See Sabine Corp. v. ONG
Western, Inc., 725 F. Supp. 1157 (W.D. Okla. 1989) ("whether or not ONG [the buyer] will be able to recoup take-or-pay payments is not material in calculating damages").
112. 108. See White & Summers at § 7-14. (Seller has burden of proving its "basic case" of lost profits; burden then shifts to buyer to show that market conditions make lost profits overcompensatory).
113. 109. See text, supra , at § 23.03[2] nn. 23-25.
114. 110. E.g.
, to sell exclusively to the buyer for the term of the contract or to supply the buyer's requirements during the term of the contract, among other obligations.

115. 111. See W.L. Summers, The Law of Oil & Gas § 762 (Supp. 1993) ("To economists, take-or-pay clauses provide for a type of `demand charge,' a charge for receiving an option to use.").
116. 112. 18 C.F.R. § 154.103 (1992).
117. 113. Under most take-or-pay contracts, the recoupment quantity is determined by the market price of the gas at the time of recoupment. See Medina et al.
at 189. This is generally done by making the buyer pay the difference between the amount paid for the gas at the time of the deficiency and the market price at the time the gas is recouped. See , e.g.
, Universal Resources Corp. v.
Panhandle E. Pipeline, 813 F.2d 77, 78 (5th Cir. 1987). However, not all take-or-pay contracts have these provisions. Under some take-or-pay contracts, once paid for, the make up gas can be recouped without additional charge. See , e.g.
, American La. Pipe Co. v.
Gulf Oil Corp., 180 F. Supp. 155 (E.D. Mich. 1950); affd. sub nom . Gulf Oil Corp. v. American La. Pipe Line Co., 202 F.2d 401
(6th Cir. 1960); Paragon Resources, Inc. v. National Fuel Gas Distrib. Corp., 797 F.2d 264, 265 (5th Cir. 1986); Colorado Interstate
Gas v. Chemco, 833 P.2d 786 (Colo. Int. App. Ct. 1991).
118. 114. See J. Calamari & J. Perillo, Contracts § 2-25 at 121-22 (3rd ed. 1987).
119. 115. U.C.C. § 1-103.
120. 116. U.C.C. § 1-106.
121. 117. The suggestion in this Chapter is probably the most favorable to the seller of those that have been written on the very difficult issue of computing damages in take-or-pay contracts. A number of authors have suggested various resolutions to this damage dilemma. As mentioned earlier, Brooke, has suggested that, to the extent that deficiencies cannot be made up over the remainder of the contract, the seller should receive the price of the gas not taken. To the extent that deficiencies could have been made up in the future, the seller is only entitled to the contract-market differential. As to future minimum takes, the author is silent, but presumably these would be calculated by using the contract-market difference.
The authors of Medina et al.
, seem to suggest that the proper measure of damages on anticipatory repudiation is simply the difference between the market price and the contract prices of the gas not taken. See Medina et al.
, at 200. This, of course, has the effect of writing the take-or-pay provision out of the contract, at least for purposes of future minimum takes, since this would be the measure of damages in the absence of the take-or-pay provision.
Professor Williams' treatise is not clear on whether the buyer should be required to pay for future minimum takes in the event of repudiation. He does say that the remedy for the buyer's failure to take the quantity of gas specified in a take-or-pay contract, is payment for the specified quantity of gas. 4 H. Williams, Oil & Gas Law § 724.5 at 665 (1990). He cites the Prenalta case for the proposition, however, and the facts of Prenalta did not involve a repudiation. Rather, it involved a suit for past deficiencies under a continuing contract. Thus, it is not clear how Professor Williams would handle damages for future minimum takes and past deficiencies when a contract is canceled due to anticipatory repudiation.
122. 118. A further limitation on the effect of this result is that the rejection (intention not to exercise) of a binding option prior to the termination date of the option does not terminate the option unless the grantor materially changes its position on the rejection. A.
Corbin, Contracts , § 94 (1964 & Supp. 1990); 1 Restatement (Second) of Contracts § 37, illus. 2 (1981). If, as suggested in the text, the repudiation of the take-or-pay contract should be treated as the rejection of an option, the buyer should be able to rescind its rejection at a later date and take gas as provided in the contract, unless the producer has materially relied on the repudiation ( e.g.
, by committing its remaining reserves to another buyer).
123. 119. This is not true with respect to the price term of take-or-pay contracts drafted during the 1970s. Because of price regulation, price terms were already exceedingly favorable to buyers. Long-term contracts and take-or-pay provisions were a response by pipelines unable to compete by offering higher prices. See 4 W.L. Summers, Law of Oil & Gas § 762 (Supp. 1934).
124. 120. It is, however, true that unconscionability has usually been unsuccessful in attacking take-or-pay provisions. See Medina at 296.
125. 121. The remaining discussion assumes that the relevant contract does not include a take-or-pay provision. However, much of the discussion remains applicable even if such a term were included. In fact, because of some of the difficulties discussed in determining an appropriate measure of damages under a take-or-pay provision, the remedy of specific performance might be even more appropriate than a contract without such a provision.

126. 122. 194 F. 1 (8th Cir. 1912).
127. 123. It appears that the contract was signed in 1910, with a Supplementary Agreement signed early in 1911, followed by breach shortly thereafter.
128. 124. Id . at 14.
129. 125. Id . at 11.
130. 126. Id . at 15.
131. 127. Id .
132. 128. 556 N.E.2d 515 (Ohio 1990).
133. 129. Id . at 521.
134. 130. See text, supra , at § 23.03[3] nn. 40 & 61.
135. 131. See text, supra , at § 23.03[3] n. 68.
136. 132. It is important to note that the court upheld the order of specific performance in Oglebay despite the fact that the contract required continued negotiations between the parties on the price term for the next 24 years. This would certainly be much more likely to lead to disputes and require the intervention of the court than a pricing mechanism that did not rest on the agreement of the parties.
137. 133. E.A. Farnsworth, Contracts § 12.4 at 854 (2d ed. 1990).
138. 134. It is true, however, that in cases involving school desegregation there will often be few, if any, other viable alternative remedies. Because school desegregation is constitutionally mandated, it can be argued that such supervision is required as a matter of constitutional law.
139. 135. U.C.C. § 2-716 official comment 1.
140. 136. Routine use of specific performance to enforce contracts has been criticized on economic grounds as leading to the potential performance of inefficient contracts. That is, it may be in the interests of both parties that damages be paid by the breacher, and both the parties be free to employ their resources in other, more valuable ways, rather than be forced to deal with each other. See
R. Posner, Economic Analysis of Law § 4.8 at 118-119 (4th ed. 1992). A short example will illustrate. Assume that Seller has a contract to sell 100 widgets to Buyer for $10,000. Buyer repudiates the contract. Seller's damages measured by the market/contract differential equal $1,000. Because conditions have changed since the time of contracting, and because Buyer does not have easy access to the resale market, the widgets are only worth $8,500 in the hands of Buyer. Specific performance would make Seller whole, but would require Buyer take goods that are worth less in its hands than in Seller's, an inefficient result.
A response to this analysis is that, if Seller and Buyer have the opportunity to negotiate around the specific performance order, they both have an incentive to do so. Seller should be willing to take some sum between $1,000 and $1,500 dollars to not enforce the specific performance order, while Buyer would be willing to pay somewhere between these amounts. Seller will retain the resource
(in whose hands it is more valuable), an efficient result. See A.T. Kronman, "Specific Performance," 45 U. Chi. L. Rev.
351, 353-54
(1978). Specific performance will give Seller the opportunity to capture some additional wealth from Buyer, however, and will result in additional transaction costs. For a full explanation, see R. Posner, Economic Analysis of Law § 4.11 at 131 (4th ed. 1992).
141. 137. U.C.C. § 2-610(b).
142. 138. U.C.C. § 2-723. Section 2-723(1) provides that "if an action based upon anticipating repudiation comes to trial before the time for performance . . . any damages based on market price shall be determined according to the price . . . prevailing at the time when the aggrieved party learned of the repudiation."

139. See , e.g.
, Goldfarb v. Campe Corp., 164 N.Y.S. 583 (N.Y. tr. ct. 1917).
144. 140. See B. Kolbach, Note, "Variable Periodic Payments of Damages: An Alternative to Lump Sum Awards," 64 Iowa L. Rev.
138 (1978); D. Flora, "Periodic Payments of Judgments in Washington," 22 Gonz. L. Rev.
155, 158 (1986-87).
145. 141. See M.L. Plant, "Periodic Payment of Damages For Personal Injury," 44 La. L. Rev.
1327 (1984) and statutes cited therein.
146. 142. See Holden v. Construction Mach. Co., 202 N.W.2d 348 (Iowa 1972).
147. 143. Critics of periodic payments argue that periodic payments in tort cases will remove the incentive for rehabilitation and return to productive activity because the periodic payment would generally represent lost wages. These payments would not be available if the plaintiff were to return to productive employment. Since the contract/market differential in contract cases assumes that goods are available for resale, there is no effect on the seller's incentive to dispose of the goods profitably.
148. 144. While a significant number of states have passed periodic payment statutes, virtually all are limited to tort, and most are limited to medical negligence. See D. Flora, "Periodic Payments of Judgments in Washington," 22 Gonz. L. Rev.
155, 159 (1986-
87). But see Holden v. Construction Mach. Co., 202 N.W.2d 348 (Iowa 1972) (upholding order of periodic payment in contract case).
149. 145. See White & Summers § 7.7 at 356.