Neri contracted to buy a boat
from Retail Marine 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.
Retail Marine claimed that
it would have sold two boats if Neri
had honored his contract.
Basically, Retail Marine claimed
that they were a lost volume seller.
Lost volume sellers lose profit even if they mitigate the
damages by selling 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 (e.g.
if your neighbor is selling his used car).
Trial Court found for Neri.
Retail Marine appealed.
The Trial Court found 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 reversed.
The Appellate Court looked
to UCC §2-718(2)(b) which 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 UCC
§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 was 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.