1 professor of law loyola law school, los angeles chapter 1 introduction
Download 1.49 Mb.
|
- Navigate this page:
- B R TEXTILE CORPORATION v. PAUL ROTHMAN INDUSTRIES LTD.
- LAKE ERIE BOAT SALES, INC. v. JOHNSON
- FOXCO INDUSTRIES, LTD. v. FABRIC WORLD, INC.
- F P BUILDERS v. LOWES OF TEXAS, INC.
Note and Questions Note the requirements of section 2-706. The resale may be at either a public sale, meaning an auction, or at a private sale. Every aspect of the sale must be commercially reasonable. If the resale is by private sale, as occurred in the preceding case, the seller must give the buyer reasonable notification of the seller’s intention to resell. If it is by public sale, the seller must also give reasonable notice of the time and place of resale unless the goods are perishable or threaten to decline speedily in value. What is the purpose of these requirements? Was there ever a true “resale” in the preceding case? ii. Seller’s Contract/Market Formula Similar to the buyer’s rights under UCC § 2-713 when the buyer does not cover, the seller is allowed to to obtain the difference between the market price and the contract price for goods that the buyer wrongfully refuses to accept. UCC § 2-708(1). The next case deals with how the market price is determined. B & R TEXTILE CORPORATION v. PAUL ROTHMAN INDUSTRIES LTD. New York County Civil Court 101 Misc. 2d 98, 420 N.Y.S. 2d 609 (1979) Plaintiff originally brought this action to recover damages sustained when defendant failed to accept approximately 36,000 yards of fabric out of a total shipment of 74,077 yards. In its decision herein the Court awarded damages to the plaintiff in the sum of $4,584.50, and applied the measure of damages set forth in UCC § 2-708(1). The major thrust of defendant's argument is that the plaintiff did not give the defendant notice of its intention to resell the repudiated goods as required by UCC § 2-706 (where the resale is made privately and not by public auction) and therefore the plaintiff was not entitled to recover the difference between the contract price and the resale price. The defendant apparently based its argument on the erroneous assumption that, in the course of the trial, plaintiff did not prove market price but instead relied solely on the resale price of $.92 1/2 per yard. The seller has the burden of proof with respect to market price or market value. A seller cannot avail itself of the benefit of § 2-708 when it has not presented evidence of market price or market value. While market value may usually be proved by a resale of the goods where the seller has taken proper measures to secure as fair and reasonable a sale as possible, the price realized on resale is not necessarily conclusive. During the trial of this action, not only was there testimony to the effect that in an effort to mitigate damages, plaintiff sold the bulk of the remaining goods to Dorfler Turk Textiles, Inc. at a price of $.92 1/2 per yard but there was further evidence adduced that a portion of the rejected goods were sold to others at similar prices. There was sufficient evidence adduced to permit the court to find that the market value of the unaccepted goods was $.92 ½ per yard. Having determined that the resale of the goods accurately reflected the market price since there was an available market for the goods, the Court's application of § 2-708(1) as the measure of damages was correct. Once the Court determined that $.92 1/2 per yard was the market value and applied that sum as the measure of damages pursuant to § 2-708, it became of no consequence that the plaintiff did not give the defendant notice of the resale as required by § 2-706. Accordingly, defendant's motion to set aside the judgment herein is denied. Question and Problem 1) UCC §§ 2-723 and 2-724 deal with the question of proof of market price. Does the court's decision give proper weight to the requirement that the seller's resale be made in good faith and in a commercially reasonable manner? Problem 86 - Contract for the sale of oil at $1 per gallon. Buyer wrongfully repudiates its obligation to take delivery. At the time and place of tender, the market price of the oil is $0.70 per gallon. Seller sells the oil, without giving notice to Buyer, for $0.80 per gallon. Should Seller’s damages be calculated under UCC § 2-706 or § 2-708(1)? See UCC § 2-703, official comment 1. Compare UCC § 2-711 and § 2-713, official comment 5. iii. Lost Profits Section 2-708(2) provides that if the contract/market formula or resale formula of damages will not make the injured seller whole, the seller is entitled to profits lost when the buyer breached the contract. This section raises two questions: 1) when is the seller not made whole by the contract/market or resale formulas? 2) how are lost profits to be calculated? The next case deals with the first question. LAKE ERIE BOAT SALES, INC. v. JOHNSON Ohio Court of Appeals 11 Ohio App. 3d 55, 463 N.E.2d 70 (1983) Appellant, Lake Erie Boat Sales, Inc., initiated an action in the Municipal Court of Cleveland, seeking damages alleged to be due from James E. Johnson et al., the appellees herein, for breach of a purchase sales agreement. This action proceeded to trial and judgment was rendered in favor of the appellees. On July 11, 1981, appellees entered into a written sales contract with appellant for the purchase of a 1981 Mark Twain Boat. The purchase price, under the terms of this agreement, was $15,233. Appellees provided a $200 down payment upon execution of this contract of sale. Thereafter, on July 13, 1981, appellees sought a repudiation of the purchase agreement explaining that the necessity for such a renunciation was due to appellee James Johnson's heart problems. At some point subsequent to appellees' July 13, 1981, renunciation of the purchase contract, the Mark Twain Boat was sold to a third party for the same purchase price as that agreed to by appellees. Upon trial of this matter before the lower court, appellant was found to have failed to present evidence establishing its position as a volume seller, thereby entitling appellant to lost profit damages. The concept of lost profits, as it applies to volume sellers, has been statutorily codified in Ohio, pursuant to UCC § 2-708(2). Section 2-708(2) applies principally in two situations: (1) when a volume seller has unlimited access to goods and easily available substitute buyers; and (2) when a manufacturer produces goods to order for a breaching buyer, and substitute buyers are unlikely to be found. Under § 2-708(1), the measure of damages is the difference between the unpaid contract price and the market price. In applying that section to the case sub judice, because the boat and equipment were sold to a third party for the same amount as that contracted for by appellees, no damages would therefore be recoverable. However, had appellees performed, theoretically, the appellant as a volume seller would have been entitled to the proceeds of two sales: one with the appellee James Johnson, and the other with the third party “resale purchaser.” It is in such instances that the damage provisions of § 2-708(2) become applicable. The controlling issue regarding appellant's assertion of an entitlement to lost profits is whether the appellant sufficiently established its status as a volume seller. In an action very similar to the case at bar, this reviewing court held the following evidence to be sufficient in establishing the status of a volume seller: Plaintiff's president testified that plaintiff is a franchised dealer of Bayliner Marine Corporation products and Bayliner has never refused to deliver any of plaintiff's orders. However, in the instant action the lower court had only the testimony of Mr. A. Leslie, a salesman of appellant company, to consider. Though Leslie testified that to his knowledge appellant had an unlimited supply of the same type of boat and equipment as purchased by appellees, there exists no other evidence in the record to substantiate Leslie's testimony. Further, Johnson's testimony directly conflicts with that provided by Leslie, appellee stating that he had been informed by Leslie that the boat under dispute was the only one available. The question before the trial court became one of witness credibility. The weight to be given the evidence and the credibility of the witnesses are primarily for the trier of fact. We therefore must conclude that appellant failed to adequately establish its status as a volume seller. In so holding, we find that appellant was not entitled to the lost profit provisions of § 2-708. Judgment affirmed. Note & Problem Both UCC sections 2-706 and 2-708(1) assume that a seller has a finished good that can be resold. Application of those sections will make the seller whole if the contract of sale contemplates sale of an existing good that can be resold if the buyer breaches the contract. For example, if I contract to sell my television set to someone, and that person breaches the contract, I can sell the television to somebody else. Section 2-706 will make me whole in awarding me the difference between the contract price and the resale price. If I do not choose to follow the procedures of 2-706, section 2-708(1) will give me the hypothetical resale remedy, assuming that I resold the television for the prevailing market price. Sections 2-706 and 2-708(1) arguably do not work well if the seller loses a sale as a result of the breach or if the seller does not have an existing, completed good to resell when the buyer breaches. For example, in the earlier hypothetical I can be made whole when I resell my television by awarding me the difference between the contract price and the resale price. But if a buyer breaches a contract with a television store, the store is arguably not made whole by awarding the difference between the contract price and the price the store receives when it sells the television to another buyer because the store will argue that it could have made two sales rather than one. It may have sufficient inventory to permit a sale both to the breaching buyer and to the second buyer. It is in situations such as this, the “lost volume” situation, where section 2-708(2) may have application. Other injured sellers who might argue for damages under section 2-708(2) include the manufacturer who has not completed manufacture at the time the buyer repudiates the contract and the middleperson who has not as yet procured the goods that are the subject matter of the contract at the time of repudiation. The reason why those sellers might not be made whole under sections 2-706 and 2-708(1) is that they do not have a completed good to resell at the time of repudiation. They can be made whole by giving them the profit that they would have made if the breaching buyer had performed. See Amended UCC § 2-708, official comment 5. Why didn’t section 2-708(2) apply in the preceding case? What would the seller have had to prove in order to obtain damages under that section? Problem 87 - Contract for a complex, electronic good. The purchase price is $20,000. The seller manufactures the good to order. The cost of the components is $6,000. The rent for the factory is $10,000 per year. The company normally sells about 1,000 of these goods per year. If 1,000 units are manufactured, the labor cost per product manufactured is $4,000, which includes employees who service the product under warranty after it is sold. When the product is finished, the buyer wrongfully refuses to take delivery or pay for the good. The seller is able to resell the good to another buyer for the same price, $20,000. The seller contends that it could have manufactured another one of these goods for the second buyer and thus claims to have lost a sale. The seller contends it could do this without hiring any additional employees or moving to a larger plant. How can this be determined one way or the other? How would damages be calculated under section 2-708(2)? See Teradyne, Inc. v. Teledyne Industries, Inc., 676 F.2d 865 (1982); Gillette & Walt, Sales Law: Domestic and International 343-349 (Rev. ed.). iv. Action for the Price In situations in which the buyer refuses to accept delivery of goods under the contract, section 2-709 permits the seller to sue for the price if “the seller is unable after reasonable efforts to resell them at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing.” Section 2-709(2) requires that in this event, the seller must hold the goods for the buyer and, if resale becomes possible before collection of the judgment, must credit the buyer with the proceeds of any resale. Is there any safeguard to protect the buyer in cases like this from commercially unreasonable resales? Compare UCC § 2-706. FOXCO INDUSTRIES, LTD. v. FABRIC WORLD, INC. United States Court of Appeals, Fifth Circuit 595 F.2d 976 (1979) Foxco is in the business of manufacturing knitted fabrics for sale to retail fabric stores and the garment industry. Fabric World is engaged in the retail fabric business and operates a chain of stores in a number of states. There are two seasons in the fabric industry, a spring season and a fall season. Before the beginning of each season Foxco displays for customers samples of the line of fabrics it will manufacture that season. Customer orders are accepted only from the fabric shown on display. On October 21, 1974, Feller [Foxco's sales manager] returned to Huntsville to show Jameson [Fabric World's president] the line for the following spring season. He gave Feller a new order, in writing, for 12,000 yards of first quality fabric, at a price of $36,705, to be delivered by January 15, 1975. A few weeks after the October 21 order was placed, the textile industry began to experience a precipitous decline in the price of yarn. Because of a drop in the price of finished goods, Fabric World wrote Foxco on November 15, 1974, and cancelled its October 21 order. Foxco immediately replied, stating that the manufacture of the order was substantially completed and that it could not accept the cancellation. On November 27, 1974, Foxco's attorney wrote Fabric World that if the goods were not accepted they would be finished and sold and Fabric World sued for the difference between the contract price and the sales price received by Foxco. Fabric World established that in December 1974 the fair market value of the October order was approximately 20% less than the contract price. However, Foxco made no attempt to sell the goods from the time Fabric World cancelled the order until September 1975, when the goods had dropped 50% in value. In that month Foxco sold at a private sale without notice to Fabric World approximately 7,000 yards from the order for an average price of between $1.50 and $1.75 per yard, a total consideration of $10,119.50. By the time of trial in April 1976, Foxco had on hand about 5,000 yards of the order worth between $1.25 and $1 per yard, or about $6,250. The court instructed the jury that, if it found that Fabric World was liable to Foxco, it was free to calculate Foxco's damages under either section 2-708 or 2-709 of the Uniform Commercial Code. Fabric World objected, asserting that section 2-709 is inapplicable in this case, and that the $26,000 verdict awarded to Foxco cannot be supported. As Fabric World correctly argues, Foxco cannot invoke section 2-706, in this case because, following Fabric World's breach, Foxco privately sold some of the goods without notice to Fabric World. Thus Foxco, is limited to its remedies under either section 2-708 or 2-709. The district court charged the jury under both of these latter provisions, leaving to the jury the determination of which was more appropriately applicable under the facts developed at trial. Since Fabric World properly concedes that a section 2-708 instruction was warranted on the state of the record before the trial judge, we may reverse only if the evidence was insufficient for the jury to invoke section 2-709 as a measure of Foxco's damages. The jury was appropriately instructed, and Foxco's damages awarded must be approved. When Fabric World cancelled its October 1974 order on November 15, 1974, Foxco had not yet fully completed the manufacture of the contracted-for fabric. The jury obviously decided that Foxco acted in a commercially reasonable manner when it decided to process to a conclusion the manufacture of the already substantially completed Fabric World order. Foxco was then entitled to the appropriate seller's breach of contract remedy. The evidence at trial clearly established that all of Foxco's goods were specially manufactured for the customer who ordered them and that it was difficult for Foxco to resell fabric manufactured for one purchaser to another buyer. Further, it was normally very difficult to sell Foxco's spring fabric after the spring buying season had ended; the precipitous decline of the knitted fabric market presented an additional barrier to resale. It was not until the next spring buying season returned that Foxco, in September 1975, finally sold a portion of the goods identified to Fabric World's October 1974 order. Fabric World argues that Foxco made no effort whatsoever to resell the goods during the months that intervened (between the contract breach and Foxco's eventual disposition of the fabric in September, 1975) despite the presence of some market for the goods in that interim period. Thus, Fabric World concludes, the requisites of section 2-709(1)(b) were not satisfied. Under section 2-709(1)(b), however, Foxco was required only to use reasonable efforts to resell its goods at a reasonable price. From the time of Fabric World's breach to September, 1975, there was a 50% decline in the market price of this material. We cannot say that the jury was precluded from finding that Foxco acted reasonably under the circumstances or that there was no reasonable price at which Foxco could sell the goods. Fabric World breached its contract with Foxco, and the jury was entitled to a charge which gave Foxco the full benefit of its original bargain. QUESTION 1) Why did the court (and jury) think that resale was not reasonably available here? Was this finding consistent with the (apparently uncontradicted) testimony that ``in December, 1974, the fair market value of the October order was approximately 20% less than the contract price?'' With the fact that Foxco did eventually resell some of the goods? Problem 88 - Contract for a specially manufactured “double-spindle stud driver” for a price of $12,377. Three months after ordering it and with it costing only $360 more to complete the machine, buyer calls the seller and tells the seller it does not want the machine. The specially manufactured machine required a number of designing changes differentiating this machine from the typical machine sold by the seller. The scrap value of the machine in its unfinished condition is $1500. What are the options available to the seller? See UCC § 2-704. If the seller decides to finish the machine, should the seller be entitled to sue for the price if the good cannot be resold because of its special condition? UCC § 2-709. See Detroit Power Screwdriver Co. v. Ladney, 25 Mich. App. 478, 181 N.W.2d 828 (1970). b. Goods Delivered The parties may agree that the buyer is not required to pay for the goods until some time after the goods have been delivered. Or the parties may agree that the buyer can pay for the goods by personal check. In such a case, where the buyer fails to pay when payment is due or if the check tendered for the goods is dishonored (“bounced”), the seller will be interested either in suing the buyer to obtain the price of the goods or perhaps in trying to reclaim the goods themselves. When the seller has either delivered the goods to a carrier for delivery to a buyer or has delivered the goods to the buyer directly, the seller’s reclamation rights to the goods themselves are quite limited. When we talked earlier about title to goods, we discussed the seller’s right to reclaim goods within a reasonable time of delivery in the event that a buyer pays with a check which is subsequently dishonored. See UCC §§ 2-507 & 2-511. We learned, however, that the right to reclamation is lost if the goods are re-sold to a good faith purchaser for value. See UCC § 2-507, official comment 3; Problem ___, supra. The seller may stop delivery of goods in possession of a carrier or other bailee if the seller discovers that the buyer is insolvent.44 UCC § 2-705. If a seller has delivered goods to a buyer on credit and discovers that the buyer was insolvent when the goods were delivered, the seller may reclaim the goods under the circumstances specified in section 2-702. The right to reclaim the goods is lost if the goods are sold to a good faith purchaser for value. In addition, successful reclamation of goods precludes the seller from seeking other remedies. UCC § 2-702(3). In practice, the best way for a seller to retain a right to reclaim goods if the buyer does not pay for them is to reserve a security interest in the goods. For the definition of “security interest,” see UCC § 1-201(37) [Revised UCC § 1-201(35)]. When the seller takes a security interest, the seller is contractually obtaining a right to recover the goods upon default in payment, and is then permitted to resell the goods to pay off what is owed by the breaching buyer. For example, you may have purchased a car on credit, allowing the seller of the car or a bank financing the transaction to keep the certificate of title (“pink slip”) until you have paid the price. In such a case, the creditor (i.e. the seller or the bank) has a security interest in the car and may foreclose upon it if you fail to make payments. The relationship of the Article 2 rights to reclaim to the rights of secured parties is better explored in a course covering secured transactions in personal property. The more likely remedy for the seller to follow if the seller does not have a security interest in the goods is to sue for the price in the event that the buyer accepts the goods but does not pay for them. Section 2-709(1)(a) permits the seller to sue for the price “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.” F & P BUILDERS v. LOWE'S OF TEXAS, INC. Court of Appeals of Texas 786 S.W.2d 502 (1990) The sole issue in this sworn account case is whether, subsequent to delivery and acceptance of goods by a buyer, the seller has the duty to mitigate its damages by accepting a return of the goods upon the buyer's request. We hold that it does not. F & P Builders ordered construction products from Lowe's. Lowe's delivered the products, and F & P accepted them. F & P was unable to pay for them and requested that Lowe's return to the delivery sites and pick up the goods. Lowe's refused to do so. F & P argues that the goods were in the same condition as delivered and that it would take minimal effort and expense for Lowe's to comply. The trial court granted Lowe's motion for summary judgment upon its sworn account. F & P judicially admitted that the goods were delivered and accepted. Its only contention is that there is a fact question in this case as to the seller's duty to mitigate damages. F & P claims that notwithstanding U.C.C. § 2-709, the Code does not abrogate the common law duty to mitigate damages. We acknowledge that the Code may not displace the common law in every case. We assume but do not decide that there is a common law duty upon the seller to mitigate damages for goods delivered and accepted. However, in our view, section 2-709(1)(a) supplants any duty upon the seller to mitigate damages for goods delivered and accepted. We hold that Lowe's was entitled to a summary judgment as a matter of law, and we affirm the trial court's judgment. NOTES AND QUESTION 1) Is the seller entitled to the price in all cases in which goods have been accepted by the buyer? If so, what is the meaning of section 2-709(3), which indicates that at times a seller may not be entitled to the price in the event of a wrongful revocation of acceptance? 2) Is the seller entitled to consequential damages? Compare UCC § 2-710 to UCC § 2-715. See also Amended UCC §§ 2-709 & 2-710. Why would the UCC distinguish between the buyer’s right to consequential damages and the seller’s right? Under what circumstances might a seller be legitimately entitled to consequential damages? See Cherwell-Ralli, Inc. v. Rytman Grain Co., Inc., Chapter 6, supra. Download 1.49 Mb. Share with your friends:
|