Neri
contracted to buy a boat for $12k, with a $4k deposit.However, Neri told Retail Marine
he was hospitalized and couldn't pay for the boat.Retail Marine had already ordered
the boat from the manufacturer.Retail Marine declined to refund Neri's deposit and he sued to
recover.
Retail
Marine countersued and claimed $4k of damages from Neri's breach of
contract.
The
boat was sold to another person for the same price.Neri claimed this meant that
Retail Marine's loss was recouped.But, Retail Marine claimed that it would have sold two boats if Neri had honored his contract.Retail Marine is claiming that
they are a lost volume seller.
Retail Marine argues that lost volume sellers lose profit even if they sell the goods to a new person for the
same price!
Under
this reasoning, almost all commercial sellers would be lost volume
sellers.The only ones who wouldn't be are those people who
only have one item to sell (eg if your neighbor is selling his used car).
Trial
Court ruled that, under UCC § 2-718(2)(b) Retail Marine had not proved any incidental
damages, and therefore should return the deposit money to Neri (except for
$500.)
Appellate
Court said that UCC § 2-718(2)(b) states that although the buyer is in breach, they can have back
any payment which "exceeds reasonable liquidated damages stipulated
by the contract", or, in absence of such stipulation (like this
case), "20% of the buyers total performance, or $500, whichever is
smaller".However, this
can be overruled by other provisions in the UCC.
UCC
§ 2-708 says that, "the
measure of the 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."
UCC
§ 2-708(2) implies that the
idea that one can recoup damages by reselling the material to someone
else assumes that you only have a limited number of items to sell.If, in reality, you have an
inexhaustable supply, a breach of contract costs the seller the entire
profit for an item, even if he then sells that item. To
someone else, since he could have had two sales instead of one.This is the principle of a lost
volume seller.
The
concluding clause of § 2-708(2); "any due credit for payments of proceeds of resale",
is only relevant to the 'junk value' of the goods, if they are sold as
scrap.This clause is not
to imply the proceeds of resale for the boat itself.If it did apply, then the last
cause of § 2-708(2)
would essentially negate the rest of the section!
According
to several parts of the UCC (§ 1-106(1), § 2-710, § 2-708(2)) legal fees are generally not
considered a protective expense.
Sometimes
marginal costs exceed marginal
revenues.It's not always
profitable to make 'one more sale'.This is why stores close at night, it's not profitable to pay the
extra salaries to keep the store open all night, even if it results in
more sales.Retail Marine
does not stay open all night, so the court is wrong is assuming that they
could always make a profit on 'one more sale'.There is an optimal number of sales per day,
regardless of what goods you are selling.
