REMEDIES (Chapter 6)
Goal is to place aggrieved party in as good a
position as if the other party had fully
performed (405)
2-712 (cover) and 2-713(mkt price)
- “Cover” damages under 2-712 allow buyer to
purchase replacement goods and seek difference
(plus inc & cons damages under 2-715) in actual
price from breaching seller.
- “Market price” damages under 2-713 allow buyer
to seek difference between K price and market
price at time (ie does not require buyer to seek
replacement goods), plus inc & cons damages
under 2-715. More in line with common law, but
price of replacement goods can be indicative of
market price.
Merkel case (406)
-Seller complained that buyer’s “cover” damages
were too high because, according to seller,
buyer paid too much for replacement goods; in
part because buyer did not buy replacements all
at once and price was rising.
- BUT 2-712 does not require B to be “perfect”
obtaining replacement, only to seek cover “in
good faith without any unreasonable delay.”
2-715 Incidental and Consequential
Damages
These types of damages often not awarded at
common law, so if K is silent UCC 2-715 is
imposed on a K for sale of goods. This is why
Sellers often include waivers of incidental and
consequential damages in their form Ks.
Problem 93 (411)
Issues to consider in determining proper “cover”
damages:
1) Did the buyer “designate” specific purchases as
“cover?” Some jurisdictions require designating,
some do not.
2) WHICH goods were used for “cover”
(particularly if not designated)? Goods in
inventory or goods bought right after? No
“right” answer under UCC but could depend on
jurisdiction. For exam purposes, note all
alternatives (spot the issue).
CSR case (412)
When opting for market price damages under 2-713, go
to 2-723 for assistance in determining market price.
Case shows difficulty in determining market price;
experts, timing, etc. See also Hess case (416): if seller
commits anticipatory repudiation, are buyer’s damages
measured by mkt price at time of repudiation or at time
seller should have performed? Authority goes both ways
depending on state; so for exam purposes note the
alternatives (spot the issue).
Problem 94 (415)
Student counsel for buyer and seller: Assuming
B entitled to SOME damages, argue over
amount, using 2-711, 2-712, 2-713, 2-715, 2723, etc.
Prep at same time as student counsel for prob
96 (slide 11).
Problem 95 (415)
2-713 Comment 5: market price damages
available only when & to extent buyer has not
covered).
What if buyer had reasonably covered but
market price was lower than cover price? Can
seller force buyer to accept market price as
measure of damages? See 2-712.
Buyer’s right to goods
Note 2-502 (xref to 2-501 for “identification”)
and 2-716.
2-502 gives buyer right to goods IF buyer has
prepaid and other requirements met.
2-716 gives right to replevy goods if goods are
“unique” or in “other proper circumstances.” So
it’s easier for buyer to replevy goods under UCC
than it was at common law (but still not easy).
Buyer’s Right to Goods
Sedmak (421)– plaintiffs entitled to replevy
goods under “other proper circumstance” under
2-716. Even though car was not unique, it was a
limited edition Porsche, one of only 6000. Thus,
a replacement could not be obtained absent
“considerable expense, trouble or loss, which
cannot be estimated in advance.” Thus, Bs had
no adequate remedy at law. See also Sherwin
(425) low stock supplies also can make goods
“unique” in commercial setting.
Problem 96
• Problem 96 – student counsel to represent
buyer and advise buyer on remedies during
consultation.
• Are goods unique?
• Are there “other proper circumstances” giving
buyer right to goods (as opposed to just $$).
Seller’s Remedies 2-703
2-703 lays out Seller’s options: a) withhold
delivery; b) stop delivery by bailee per 2-705; c)
proceed under 2-704 (identified goods); d) resell
and recover damages per 2-706; e) recover
damages for non-acceptance (2-708) or in a
proper case the price (2-709)
(2-702 also gives seller options “on Discovery of
Buyer’s insolvency”)
Problem 97 (428)
(Proper resale under 2-706?)
Resale must be 1) in good faith and 2) made in a
commercially reasonable manner in every aspect (eg
method, manner, time, place and terms). 2-706. If so, S
can recover difference in sale price, plus incidentals (2710), less any expenses SAVED. S must also give B
reasonable notice of his intention to sell in private sale.
See 2-706(3). (Sometimes S must give B notice of public
sale as well. See 2-706(4).
Mkt price higher than price in second sale; Notice given
to B per 2-706(3)? Did S save expenses or not? What
about $10K B already paid. See 2-718(2)(b) ($10K-$500)
Problem 97 (cont)
If Random cannot get “resale” damages under 2706, it can seek damages under 2-708:
Difference b/w K price and market price at time
and place of tender. “Place of tender” can be
different if shipment K (Seattle) vs. Destination K
(Chicago).
S also gets consequentials per 2-710.
Problem 98 (429)
B improperly rejects 48,000 barrels of oil, so S
sends those barrels to another buyer (X) for
more $$. S sells an ADDITIONAL 48,000 barrels
of oil to another buyer (Y) for less (B’s counsel
did a good job in getting info in discovery).
Does anything in 2-706 (resale damages) require
S to resell the SAME goods? What about mkt
price under 2-708?
Problem 99 (430) Seller’s Lost Profit
Market price and resale price are both the same
price as S would have sold to B ($28K). So how can
S get damages? See 2-708(2) (lost profits +
incidentals under 2-710).
This is the theory of the “lost volume seller,” ie
seller would have sold one additional unit but for
buyer’s breach. Thus, at least theoretically,
recovery of lost profits puts S is in same position S
would have been had B not breached.
Kenco case (430)
2-708(2) (lost profits) comes into play when 2708(1) (diff b/w market price and sale price) is
inadequate. Three ways 2-708(1) can be
inadequate: 1) S does not order goods after B’s
(anticipatory) breach; 2) S has goods but they
are obsolete or otherwise no market for their
resale; or 3) S has the goods and resells but
would have sold one more (to the breaching B);
lost volume seller
Precision case (435)
S’s action for the price
S got the “price” under 2-709(1)(b) (S unable to
resell after reasonable effort OR “circumstances
reasonably indicate that such effort will be
unavailing”). But S must also hold the goods for
B once B actually pays the price. 2-709(2).
2-714(2) B’s damages for breach [of
warranty] re: accepted goods
If S has breached a warranty and B accepts, B’s
damages are difference b/w value of actual
goods and value of goods had they conformed
to the warranty in the K. 2-714(2).
Typically value of conforming goods is the sale
price, but sometimes value of conforming goods
can be higher (maybe S discounted because
goods did not conform).
Problem 100 (439)
Value of what goods would have been had they
conformed to warranty under 2-714(2) is the
value “at time and place of acceptance.” Goods
not “accepted” until Missouri. So what is $$
value of the coal for calculating B’s damages?
What about the fact that K price was only for
$100/ton? . . .
Problem 100 (439) cont
Even though sale price was only $100/ton, that is only
EVIDENCE of the value the goods would have been had
they conformed to the warranty. Since the ACTUAL value
was $170/ton in Missouri, B gets to use higher amount
(170) for its damage calculation under 2-714(2).
See also Holden case (440): Repair costs are EVIDENCE of
value goods should have held if they had not breached
warranty. However, relation of repairs to value is
important (display car v. working equipment). Also,
repair costs may not be good evidence if goods totaled.
Problem 101 (443)
Goods conform (do not breach any warranty)
but are LATE, causing B damages. B
nevertheless accepts goods (coal) upon arrival.
Since no breach of warranty, is 2-714(1)
applicable or is 2-714(2) applicable? . . .
Problem 101 (443) cont
No breach of warranty at issue, so 2-714(1) applies
(not 2-714(2)).
Under 2-714(1), damages to B “determined in any
manner which is reasonable.”
2-714(3) – incidentals and consequentials also
recoverable.
Don’t forget about 2-607 notice . . .
Problem 101 (443) cont
2-607(3)(a): Where tenders has been accepted
by B, B must w/i reasonable time after he
discovers or should have discovered breach,
NOTIFY SELLER of breach or be barred from
recovery.
Siemens case (443)
Under 2-709(1)(b), S must try to resell BUT
Court holds that 2-709(1)(a) applied because B
accepted goods. Under 2-709(1)(a), no
requirement to try to resell.
But what if B had wrongfully rejected goods,
rather than accepting them and sending them
back later? See problem 102 . . .
Problem 102 (445)
B wrongfully rejected the goods; goods
conformed to K and were on time.
However, B’s rejection was legally “effective”
because B followed proper UCC procedures.
So B did not “accept” goods under 2-709(1)(a),
so S cannot maintain action for price. S can still
sue for damages under 2-706 or 2-708.
Problem 103 (445)
In contrast to Problem 102, B received nonconforming goods but “accepted” them because
B failed to make a legally effective “rejection”
under UCC. See 2-607(3)(a).
So S CAN seek the price under 2-709(1)(a)
B can nevertheless seek damages or offset for
breach of warranty under 2-714.
Problem 104 (446)
FCA St. Louis means that Risk of Loss shifted to B
when S, located in St. Louis, gave the goods to
carrier in St. Louis. So if goods destroyed in
transit, does 2-709(1)(a) permit S to seek the
price? . . .
Does the answer change under 2-709(1)(a) if
goods did not conform? . . .
2-709(1)
(1) When the buyer fails to pay the price as it becomes
due the seller may recover, together with any incidental
damages under the next section, the price
• (a) of goods accepted or of conforming goods lost or
damaged within a commercially reasonable time after
risk of their loss has passed to the buyer; and
• (b) of goods identified to the contract if the seller is
unable after reasonable effort to resell them at a
reasonable price or the circumstances reasonably
indicate that such effort will be unavailing.
Problem 105 (446)
B wrongfully (but effectively) rejects goods and S
takes them backs and stores them, and then
goods are destroyed in fire in S’s warehouse.
Did Risk of loss pass to buyer? Were goods
conforming? If yes and yes, does it matter that S
now has goods back? See 2-709(1)(a) previous
slide.
Problem 105 (446) cont
Assume now that S kept goods in warehouse for
5 months after B’s wrongful (but effective)
rejection. What is B’s argument? See italics 2709(1)(a) two slides ago.
Reclamation of Goods by Sellers
Typically not permitted UNLESS seller takes a
security interest under Article 9. 2 Exceptions:
-2-702(2): Where the seller discovers that the buyer
has received goods on credit while insolvent, the
seller may reclaim the goods upon demand made
ten days after the receipt. . . ( see 1-201(23) for
“insolvency” definition).
- 2-507(2) and Comment 3: Cash seller can reclaim
if payment not made when due; check is considered
“cash” payment (as opposed to credit) so bounced
check falls under 2-507(2)
Problem 107 (450)
Before subpart “a” of the question, S has a decent
argument to reclaim b/c elements of 2-702(2 & 3)
may be met. But . . .
a) Is Vulture a “buyer in ordinary course” under 2702(3)? What about the check from Vulture;
does 2-702 extend to proceeds?
b) Does bank qualify as “other good faith
purchaser” in 2-702(3) (as defined in 2-403)?
Case law says YES so secured party (Art 9)
trumps seller under 2-702(3).
Problem 107 (450) cont
In order for seller to reclaim goods under 2702(2), seller must be able IDENTIFY goods.
c) Crude mixed in with other identical crude is
identifiable, even if S cannot identify specific
“molecules,” but . . .
d) Altering goods makes them non-identifiable
Questions after 107 (451)
1. Seller reclaiming goods loses all other remedies.
See 2-703(3). But see problem 108 and
questions after: cash seller reclaiming DOES NOT
lose other remedies; also not subject to 10-day
deadline.
2. Don’t forget about demanding adequate
assurances under 2-609. Otherwise follow steps
under 2-705 to STOP DELIVERY. Careful, 2705(2) says when it is too late to stop delivery.
2-715 Buyer’s Incidental and
Consequential Damages
Wells case (452) illustrates consequential
damages buyer can get. Buyer’s credit rating
damaged because buyer stopped paying bank
(which loaned buyer $$ to buy goods), because
goods were defective and buyer properly
revoked acceptance. Bank’s reporting to credit
agencies of B’s failure to pay was FORSEEABLE to
seller.
Problems 109 & 110 (455-56)
109: Just note that if other 2-715 requirements
met, lost profits are recoverable if B can prove
them “to a reasonable certainty.” For a new
business, B can use profits of a similar business.
110: Just note that if other 2-715 requirements
met, B can also recover damages for
expenditures IN RELIANCE on S’s expected
(proper) performance under K.
Indiana Glass case (456)
In accordance with the American Rule,
attorneys’ fees, incurred by B in suit against S,
ARE GENERALLY NOT recoverable as incidental
or consequential damages.
However, B may be able to recover attorneys’
fees B has expended in a suit with a 3d party
resulting from S’s breach.
Seller’s Incidental Damages 2-710 (S
not entitled to consequentials)
Nina case (460) shows consequentials S is NOT ENTITLED TO (e.g. $18M in lost
profits, lost revenue, lost business opportunity are consequentials and thus
are NOT recoverable by seller).
Florida Recycling case (462) shows incidental damages to which S IS ENTITLED
under 2-710. Refitting goods (machine) to conform to substitute buyer’s use
is recoverable.
Problem 112: diff b/w incidentals, which are recoverable by S, and
consequentials: Incidentals are extra expenses subsequent to B’s breach and
resulting therefrom incurred by S in dealing with the contracted goods. By
process of elimination then, consequentials include all other losses.
So what about $10K re-do, $500 to fly jet to new buyer; $1500 in sales
commissions for second sale; $2,000 in finance charges; $1K insurance; $15K
lost profits from future service to Buyer.
2-718 Liquidated Damages and
Deposits
Liquidated damage clauses allowable if: 1)
reasonable in light of “anticipated or actual harm”
(back door for consequentials for S?); 2) difficulty in
proving loss; 3) inconvenience or non-feasibility of
otherwise obtaining an adequate remedy.
Kvassay case (467) how did case come out under
these 3 factors? If clause had said S gets $5/case or
lost profits, whichever is greater, clause is probably
a “penalty” and not permitted.
Damages in Leases (Art 2A)
- Similar to damages in sales (Art 2) cases, but not
exactly the same. For example, consider that two
leases for the same goods nevertheless might have
varying provisions (eg maintenance requirements,
length of lease, etc), so “covering” the loss of one
lease with another is not as straightforward as
“covering” in a sale.
- Also, what about present value? if lessee has to
“cover” the loss of a 3-year lease, and the
replacement lease will cost $200/month more,
should lessee get $7,200 NOW?
Problem 114 (470)
- On 11/1, Lessor (Def) repudiates lease of
computers that would have cost Lessee (Pltf)
$100/mo per unit for 3 years. Lessee had paid
one month rent in advance ($20k total). Lessee
finds replacement lease that costs Lessee
$140/mo per unit for 3 years.
- On 11/1 market rent for same computer was
$125/mo in Chicago and $120/mo in Seattle.
- On 11/9, market rent for same computer was
$135/mo in Chicago and $130/mo in Seattle.
Problem 114 (470) cont
Does replacement lease ($140/mo) qualify as
“cover” entitling Lessee to recover difference
(140-100) per computer? 4 factors 2A-508(2):
1) Cover must be through a lease (not a sale); 2)
cover lease must be “substantially similar to
original lease agreement;” 3) cover lease must
be made in good faith; 4) cover lease must be
made in a commercially reasonable manner.
Problem 114 (470) cont
Most difficult factor to address is often #2, replacement
lease “substantially similar to original lease agreement.”
How can it be “substantially similar” if new lease is for
$40 more per computer per month?
TEST: Does replacement lease provide a valid measure of
lessee’s damages? Does it allow lessee to compare
“apples to apples” to determine lessee’s damages?
Toughest to answer this when length of term is different,
or when new lease includes additional favorable
consideration to lessee (eg option to purchase for cheap
at end of lease).
Problem 114 (470) cont
If replacement lease is substantially similar to
qualify as cover, what are lessee’s damages? Lessee
will need to pay $28k/mo instead of $20k/mo for
three years. So $8k difference per month.
So should Lessee get $288K ($8k x 36 mo)? What
about the fact that Lessee does not pay full amount
of lease now, but does so over 36 months? See 2A518(2) (present value).
Problem 114 (470) cont
If Lessee CANNOT get cover damages (ie if cover
lease not substantially similar to original lease), is
Lessee out of luck? How to measure Lessee’s
damages?
See 2A-519: similar to sales, Lessee can get
difference between Lease ($100/mo/computer) and
market rate “as of the date of default” of 11/1, and
at “place of tender.” So damages will differ if place
of tender is Chicago vs. Seattle. Check FOB or other
K terms. ALSO need to discount for present value.
Problem 114 (470) cont
Don’t forget about $20K Lessee prepaid. Lessee
can get this back. 2A-508(1, 1(b)) (lessee can
“recover so much of the rent and security as has
been paid and is just under the circumstances.”
FINALLY, don’t forget that Lessee gets incidentals
and consequentials, if any. 2A-520.
Problem 115 (471)
Lessee decides to accept and keep non-conforming
goods. What damages? See 2A-519(4):
Except as otherwise agreed, the measure of damages for
breach of warranty is the present value at the time and
place of acceptance of the difference between the value
of the use of the goods accepted and the value if they
had been as warranted for the lease term, unless special
circumstances show proximate damages of a different
amount, together with incidental and consequential
damages, less expenses saved in consequence of the
lessor's default or breach of warranty . . .
Problem 115 (471) cont
So, it’s the $5K it needed to repair.
ALSO, to recover its damages, Lesee can reduce its
lease payments by $5K, see 2A-508(6), as long as
Lessee notifies Lessor of its intention to do so.
FINALLY, note that Lessee gave notice of the
problems with the goods even though Lessee
accepted them. 2A-516(3) (otherwise, Lessee is
“barred from remedy”).
Problem 116 (474): Lessor’s Remedies
Lessee refuses to take delivery and Lessor finds a
substitute lease but for less $$. Lessor’s damages
are difference between the lease amounts,
discounted to present value AS LONG AS NEW
LEASE IS “SUBSTANTIALLY SIMILAR.” See 2A-527(2).
Alternatively, if Lessor cannot get “cover” damages
(ie if the replacement lease is not “substantially
similar”) Lessor can recover difference between
market rent and lease amount with breaching
Lessee.
Problem 116 (474) cont
Lessor ALSO gets incidentals under 2A-530, less
any expenses saved, but NOT consequentials
(similar to Art 2 seller).
2A-525 Lessor’s Right to Repossess
- Lessor’s rights are stronger here than a seller in
Art 2 because Lessor is still the owner and
Lessee’s right to possession depends on paying.
- Lessor can repossess if Lessee commits a default
described under 2A-523(1) (wrongfully rejects,
wrongfully revokes acceptance, fails to pay when
due, ETC.) or a default under 2A-523(3) (some
other default that substantially impairs value of
lease to Lessor).
- Lease also can have written provision for repo
under other circumstances.