Seller's Remedies for Buyer's Breach II
I will consider both 2-708 and 2-706 here because they interrelate and the cases sometimes go back and forth between which remedy is appropriate. The four cases important to know for these sections are Jagger (p.509), Tesoro (p. 512), Rowland (p. 518) and Neri (p. 519). I will not make comments here or in class on the final two cases assigned.
Seller's Damages upon Non-Acceptance (2-708). The section immediately gives us the measure of damages when the seller refuses to accept or repudiates the goods. This measure is a mirror image of the damage provision in 2-713, and says that the measure of damages is the difference between the market price at the time and place for tender and the contract price plus incidental damages and less any expenses saved in consequence of buyer's breach. 2-708(1). This may be expressed in the following formula:
Damages= cp-mp+incidentals-expenses saved.
Note that only incidentals are provided for here while 2-713, the buyer's mirror image provision, allows consequential damages also. Is this an oversight for the Code? If one compares 2-715 and 2-710, the former talks about a buyer having the remedy of incidental AND consequential damages while the seller only has the remedy of INCIDENTAL damages. The Code seems to believe that a seller is in a better position to guard against his or her own losses once a buyer has breached and so does not allow consequential damages.
At this point I gave a long story problem in class about the sale and shipping of salmon from Portland to Spokane. I won't give the details here; suffice it to say that I gave it to illustrate the difference in recovery when one differentiates between place of tender, contract price and market price, and when one also includes incidental damages.
One should also note 2-708(2) which especially applies to what is called a "lost volume seller." Such a seller, like a car dealer, is assumed to sell from inventory or from an unlimited supply. If the contract for sale is breached by a buyer, the buyer, under 2-708(1), might argue that as the seller was able to resell the car, a standard item, at the same price to the next willing buyer, the seller experienced no damages. This section is meant to deal with that problem and provides that in such a case the recovery to the dealer is the profit which the seller would have made from full performance, together with incidental damages. This remedy is available, as said, only in the case where the dealer sells from an inventory. Thus, this issue became important in the Tesoro case where the court ultimately concluded that damages were appropriate under 2-706 and not 2-708.
Seller's Resale in 2-706. This section is the mirror image of 2-712 relating to the buyer's ability to cover and receive damages from the seller. In 2-706 the measure of damages when the seller resells the good or contracts to resell the good is the difference between the resale price and the contract price together with incidental damages less expenses saved in consequence of the buyer's breach. Or, in our formula
Damages= cp-rp+incidentals-expenses saved.
The section goes on to detail the kind of resale that will allow a seller to take advantage of this remedy. The overarching principle, hardly unexpected, is that every aspect of the resale, including method, manner, time, place and terms must be "commercially reasonable (2-706(2))." Subsection (3) then says that if the sale is private, the seller must notify the buyer of the sale. subsection (4) provides the conditions for a public sale. Especially important are the provisions requiring an opportunity for reasonable inspection (c), the sale in a "usual place or market" (b) and the ability of the seller to buy at his or her own sale (d). Comment 4 defines the difference further between a public and a private sale. The basic principle is that a public sale is an auction while a private sale may be done through a broker or directly to people.
Finally, a brief word on the cases under these sections. Jagger explored the issue of damages available when Jagger purchased and paid for almost two tons of yarn but then repudiated the contract for a remaining eight tons. Defendant never manufactured the remaining eight tons. There was agreement that 2-708 would control but Jagger contended that the measure of damages was indicated in Comment 2 of 2-708 while appellee contended that subsection (1) applied. The court affirmed the lower court and awarded damages according to appellee's theory.
Tesoro took up the difficult issue of whether 2-706 or 2-708 applied in the case of sale of petroleum when the market price for gas declined considerably between contract time and delivery. This case is reminiscent of the Allied case (p. 475) and it weighs the express language of 2-708 in comparison with the principle of 1-305 (new) regarding recovery. Because there was a resale in this case, the court concluded that damages under 2-706 were available, and that damages under 2-708 would have provided a windfall for Tesoro.
The Rowland case is an interesting brief treatment of the relationship of 2-704 to the damage provisions of 2-708 and 2-709 and weighs the situation of when it might be appropriate to allow a porduct to be finished and recover under 2-709 rather than 2-708. Finally, in Neri, the court explored the issue of the "lost volume seller" provision of 2-708(2) and held that the dealer would get the profit of the sale of one vehicle, plus incidental damages, even though the dealer sold the boat to a new purchaser for the same price as originally contracted for to the breaching purchaser.