Missouri Furnace v. Cochran
8 F. 463 (C.C.W.D.Pa. 1881)
Cochran signed a contract to
send 36k tons of coke to Missouri Furnace at $1.20 a ton, 2k tons per
Cochran only delivered about
4k tons and then cancelled the contract.
In response, Missouri Furnace
made a long-term contract with another company to deliver the remaining
29k tons of coke at $4.00 a ton over the course of the rest of the year.
Missouri Furnace's problem
was that the price of coke went up and down a lot. It was only at $1.20
when the signed the contract with Cochran, but on the day they signed
with the other company, it had jumped to $4.00 a ton.
$4.00 a ton was considerably
higher than the typical market rate.
Missouri Furnace sued Cochrane
to recover the difference ($4.00-$1.20 = $2.80 per ton).
The Trial Court found for
Cochran. Missouri Furnace appealed.
The Trial Court agreed that
Cochran was liable for damages, but that found that the damages should be
"the difference between the contract price (what Cochran was the
receive) and the market price of standard coke at the price of delivery, at
the several dates when the deliveries should have been made under the
This meant that they
figured out average price of coke was, and award damages based on
(Average Price) - $1.20, not $4.00 - $1.20.
The Court noted that
Missouri Furnace did act in good faith in making the $4 a ton contract,
even if it wasn't a good deal in the long term. There was no attempt to
run up damages. But, in the view of the Court, Missouri Furnace is
stuck with the risk of price fluctuations.
The Appellate Court affirmed.
The Appellate Court found
that the damages should be calculated as the difference between the
contract price and the market value of the article at the time is should
This means that the
"time of the breach" is technically the "time when
delivery should have been made." Where delivery is required to be
in installments, the measure of damages shall be estimated by the value
at the time each delivery should have been made.
The issue here is whether
Missouri Furnace should have signed a long term contract at that high
rate, or realized that the rate was probably going to drop and therefore
should have signed only a short term deal and bought more later, when the
price had dropped. The 2nd contract was at Missouri Furnace's own risk and
damages cannot be blamed on the 1st contract.
This Court case was poorly
decided, because if the spot price had gone higher than $4 a ton, the
Court would have not awarded the spot-contract price, it would most likely
have capped damages at $2.80 per ton. In this case, the court has put the
entire risk on the plaintiff!
This case was decided prior to
the UCC, so it would never be cited in a new case.
UCC §2-712 goes against the decision in this case.
In the UCC, all the
Missouri Furnace would have been required to do while covering is make a
commercially reasonable purchase,
which they did. As long as the purchases are made in good faith, then
the defendant is liable for the difference between the cover price and
the contract price.
This commercially reasonable standard doesn't fly in other legal
situations. For example, if you get caught speeding, you can't use the
argument that speeding is the way most people drive.