Neri v.
Retail Marine Corp.
Court of
Appeals of
30 N.Y.2d
393, 334 N.Y.S.2d 165, 285 N.E.2d 311.
Facts: Neri and the other plaintiffs made a contract with the
defendant to buy a boat. Neri repudiated
the contract when he got sick and couldn’t pay.
The defendant sold the boat to someone else, but held on to the plaintiffs’
deposit. The plaintiffs sued to recover
the deposit. The defendants countersued,
claiming that if the contract had been performed, they would have sold two
boats instead of one, and therefore the plaintiffs were liable for their lost
profit.
Issue: Can the seller recover loss of profits when the buyer
repudiates a contract?
Rule: The UCC says that if the difference between the market
price and the contract price at time of performance is not sufficient to put
the seller in as good a position as performance would have done (c.f. UCC §
2-708(1)), then the seller can get the profit he or she would have made from
full performance (UCC § 2-708(2)).
Analysis: The court basically says that UCC § 2-708 (2) is
novel enough that the trial court sort of overlooked it and applied the old
rule (exemplified by § 2-708(1)) appropriately. The court says that UCC § 2-708 (2) is the
right rule here.
The court mentions that, of
course, the plaintiffs get restitution, but these damages are reduced by the
losses to the defendants. The court
finds that the defendants proved sufficiently in trial court that they lost
profits and also incurred expenses in storing and keeping up the boat while
they were waiting to sell it to somebody else.
Conclusion: The court ordered the appellate court’s judgment
modified such that the plaintiffs get back their down payment less the loss of
profit by the defendant and the defendant’s incidental damages.
Note
In R.E. Davis Chemical
Corp. v. Diasonics, the court found that for a
lost-volume seller, they can skip directly from § 2-706 (the possibility of
reselling the stuff that was repudiated upon) to § 2-708 (getting your basic damages
or lost profits). As always, the
standard is that we want to put the injured party in as good a position as performance
would have done.
The court in R.E. Davis
takes issue with the definition of “lost-volume seller” used by other courts. It is claimed that other courts failed to
take into account the economic principle of diminishing returns or increasing
marginal costs. That is to say: sure,
the seller could have produced another unit if the buyer hadn’t breached, but
would it have been worth it? Then the
idea is that you shouldn’t reward the seller with lost profit, because that’s
profit that they wouldn’t have chosen to take advantage of anyway.
The court concluded that the plaintiff
had to show that it was in their interest to actually produce and sell the
extra unit in order for them to collect as damages the profit they would have
made from that extra unit.
The UCC is going to be
revised based on this idea. It makes
more explicit that § 2-708(1) (regular old market price minus contract price)
and § 2-706 (resell the thing) take precedence over § 2-708 (2) (you get your
lost profits). They don’t say how you
should calculate those lost profits, though, because it can vary from case to
case.
Back to Limitations on Expectation
Damages