Contracts Class Notes 9/4/03

Some problems

Problem 1: a consumer repudiates an agreement to sell a used car to another consumer. Carl Consumer agrees to sell a Camry to Mother for $7000. The market price of the Camry is $8200. Mother puts $100 down. Carl repudiates.

First off, is the agreement enforceable? You can find out from the Statute of Frauds.

This is a contract for the sale of goods. Unless there is something written down to show there’s a contract, the contract is no good unless one of the parties has either made a payment or delivered goods (among other things).

So, a part payment has been made for these goods. Shouldn’t we have a problem with this? Check out the Statute of Frauds.

So we’ve decided there’s an enforceable contract, so Mother has a shot against Carl Consumer.

What are the buyer’s remedies? § 2-711 (1) – if the seller fails to make delivery, the buyer can “cover” and collect damages in addition to getting restitution. The buyer must “cover” in a reasonable amount of time.

In our example, the buyer did cover, and it certainly seems reasonable because it was a “remarkably similar” car, and it was purchased at slightly below market price. The damages that Mother will get will amount to the cover price minus the contract price plus restitution.

§ 2-712 and § 2-713 are alternatives. Could Mother go for § 2-713? It would give her more money, because it goes by market price rather than the price she paid to cover. It turns out, by the statute, that § 2-713 is “completely alternative” to cover, and it can only apply if the buyer chooses not to cover. So no, she couldn’t go for § 2-713 under these circumstances.

What if she goes for unreasonable cover, e.g. too expensive? It’s not considered a cover. It doesn’t qualify to give her damages under § 2-712. She could actually proceed to § 2-713 if her cover is unreasonable.

If the cover is unreasonable, it’s not fair to shift the cost of that cover to the contract breaker.

Problem 2: Say we’ve got the same contract and breach, but now Mother decides not to buy the car anyhow. What are her rights? We will proceed here to § 2-713. She should get market price minus contract price plus restitution plus incidental and consequential damages.

Mother had a favorable bargain here! The car was worth $8200, and she was going to get the car for $7000. That’s worth something to Mother! Even if she didn’t want the car anymore, she could have sold the car for $8200 and taken the $1200 profit.

Two alternatives: market price minus contract price, where applicable, or cover price minus contract price where applicable.

The injured party needs to be put in the position performance would have done.

This is the backbone of all of the provisions of UCC Article 2.

How do we know what the market price is? In court, Mother would have to prove what the market price of the car was. One bit of evidence that would be introduced is the $7000 agreement. Mother must come up with other evidence that this price was actually below market price and she had a favorable deal going down.

This problem suggests that Mother gets a little more money if she doesn’t cover. Realistically, she would have a whole lot more trouble recovering damages if she didn’t cover because of the proof she would have to supply showing market price.

When we settle a controversy, we really settle it. If a contract is not performed, we don’t know precisely what position you would have been in if the contract had been performed. But we do the best we can. The historical record might show that you made ought better or worse than you should have, but too bad.

An aside, a Statute of Frauds question: what if the down payment had been a penny? What about a nickel? What about one dollar? What if the agreement had been for a million marbles and one marble was delivered? Is there a valid agreement?

§ 1-106 in the “old” version of the UCC is equivalent to § 1-305 in the “new” version of the UCC.

The buyer in default

Problem 3: Byer agrees to buy Nabor’s Honda for $2500. Nabor delivers the car as scheduled, but Byer doesn’t pay as scheduled. What can Nabor get? Is this contract enforceable? Yes, because the goods were delivered (in the other case, it was the money that had been paid).

What’s the remedy for the seller? Is it repossession of the car? No. The car belongs to Byer. If Nabor goes and repossesses it, she’s a tortfeasor and a thief.

But Nabor does have a contract claim for the full contract price. We find this out in § 2-709. This is the classic case of an “action for the price”.

The buyer’s got the goods. The credit period has run. It’s common sense. And it’s provided for in the statute.

So Nabor can sue Byer for breach of contract and ought to collect $2500.

There’s also an action for the price if the seller can’t find somebody else who will buy the goods at a reasonable price. Say you have stationery with the buyer’s name on it. You’re not going to be able to sell that to anybody else, so in that case you can sue the contract breaker for the price.

If the buyer is found liable and does pay for the stuff, you have to give them the stuff, with a few exceptions (c.f. false teeth cases). It’s rare that the seller needs the full price.

Problem 4: say the seller doesn’t need the full price and won’t get it. Let’s say Byer was supposed to bring cash when he picks up the car. He never picks up the car and never pays. This contract is not enforceable if it’s not written in this case. Nora resells the car to a third party for $2000, which is $500 less than she would have received from Byer and $200 below the market price of $2200. Can Nora recover any damages from Byer?

Nora certainly doesn’t need the full price. She kept the value of the car. Which section of the UCC will inform her of her rights? How about § 2-706? It involves the possibility of resale.

§ 2-706 provides for the recovery of the difference between the contract price and the resale price. This suggests she could get $500. This section is analogous to § 2-712 for a buyer’s damages. § 2-706 mitigates a seller’s damages based on an actual resale, where § 2-712 is based on reasonable cover.

Look at § 2-706 (2): it says that every aspect of the resale must be commercially reasonable.

There is evidence that the resale was not reasonable because it was below market price. Nabor has a $500 hole in her pocket, but only $300 was caused by Byer. If she had been more careful in reselling the car, she would only have been out that $300.

Where do you go if § 2-706 doesn’t apply? You go to § 2-708 (1) (seller’s damages for repudiation). § 2-706 (resale) is to § 2-712 (cover) as § 2-708 (1) (seller’s damages for repudiation) is to § 2-713 (buyer’s damages for repudiation).

When the resale is private, the seller must give the buyer reasonable notification. No notification leads to no resale damages.

In the current problem, we must go to § 2-708 (1) and check out the current market price. That $2200 price mentioned is easy to state, but tough to prove. What should we advise Nabor to do? She should make sure to give notice of resale and take her time finding a good deal.

It’s hard to prove market price. Cover or resale is better.

Problem 5: Let’s say we have a car dealer with lots of cars to sell. Dealer agrees to sell a brand new Honda to Byer for $14,500. Dealer has four identical cars on her lot at the time. Byer signs a promise to pay $14,500. He changes his mind overnight. Two days later, Dealer sells the very same car to Sucker for $15,750. Also, we’re told that the Dealer paid $12,000 for the car and paid $2000 in overhead in doing her dealing.

Can we recover the car? Nope, we still have the car. § 2-709 will not help.

How about § 2-706? What if Dealer gave Byer notice that she was going to resell? No dice. The contract price minus the resale price would be negative.

§ 2-708 (1) is a loser too, because the market price minus the contract price is negative too. Dealer gets nothing under any of these sections.

How about Dealer tries § 2-708 (2)? She says she needs a recovery to be placed in the same position performance would have done. She’s in a different position than Nabor. She has lost profits.

However, Dealer has several cars. In Nabor’s case, it was a breach that made the second sale, or keeping the car, possible. In Dealer’s case, she could have made the sale to Sucker and anybody else. She has a much greater supply of cars than she can find buyers to purchase them. She is a lost-volume seller. Whatever that lost transaction would have contributed to her is what she should recover.

Start with the idea that the profit is the contract price minus the costs. So for starters, the profit is $2,500. If Byer had followed through, she would have made this profit. If both Byer and Sucker had bought cars, she would have received both profits. That’s why Dealer should recover the profit from the contract Byer repudiated.

Look at Dealer like Luten Bridge or any other services contractor. Getting a second job doesn’t mitigate a loss because an expansible service provider could have done both jobs.

We’ll look at Neri tomorrow.

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