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28 Cards in this Set
- Front
- Back
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2-706 Seller's Resale Including Contract for Resale
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1. under the conditions stated in 2-703 on seller's remedies, the seller may resell the goods made in good faith and in a commercially reasonable manner the seller may recover the difference between resale price and the contract price together with any incidental damages allowed under the provisioms of this Article but less expenses saved in consequences of the buyer's breach.
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2-706(1) Resale
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the seller may choose to resell the goods (assuming its possible to identify which goods were the contracted for ones), in which case the seller can recover the contract/resale differential. Resale is of course the conventional method of mitigating damages.
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2-706 is a form of "what" for an aggrieved seller?
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2-706 is a form of damages for a breach of contract for an aggrieved seller.
Eg. Seller contracts to sell buyer 100 books. The total contract price is $200. Before shipment, buyer wrongfully repudiates the contract. Seller resells the books to X who pays $100. Assuming the sale was made in "good faith" and "in a commercially reasonable manner" Seller may recover damages of $100 (the contract price minus the resale price from Buyer). But if X had paid $300, Seller may keep the $100 over the original contract price. |
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2-706(1) applies in what situation?
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Resale by seller:
Where the buyer rejects goods or repudiates before they are even shipped, the sller will normally resell them to a 3rd party. If the resale is "made in good faith" and in a "commercially reasonable manner" the seller may reocver "the difference between the resale price and the K price together with ny incidental damages...but less expenses saved in consequence of the buyer's breach." This measure will put seller in approximately the position he would have been in had the contract been perfomed by the buyer. |
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Does seller have any recourse if he/she can't resale where buyer repudiates a contract?
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2-709(1)(b). In some instances, the seller can hold onto the goods and sue for the contract price. But UCC allows this only where "the seller is unable after reasonable effort to resell [the goods] at a reasonable price or the circumstances reasonably indicate that such effort will be unavailing." This might apply in cases in which the goods were highly customized or specially made and no other buyer would want them.
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2-706(2) and (3) Procedures for Resale by aggrieved seller
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If the buyer does plan to resell the goods he/she may do so either at a public sale (i.e. auction) or at a private sale. 2-706(2). But if the resale is to be private, the seller must give the buyer reasonable advance notice of the seller's intent to resale. 2-706(3).
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2-706(4)(b) Procedure for public resale by seller
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If a resale is to be public, the seller must give the buyer reasonable notice of the time and place of the resale, unless the goods are "perishable or threaten to decline in value speddily." The public resale must take place at a "usual place or market for public sale" if one is available. The seller may purchase at the public sale.
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2-708(1) Contract/Market differential
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Seller may choose not to resell goods. In that event the seller normally recovers the difference between the contract price and the market price "at the time and place for tender." The problem for the seller is that if he/she doesnt resell, the market price falls after the time when delivery was called for in the contract, the seller, not the buyer, will bear this loss. So in that sense, the seller will bear the risk of failing to mitigate by a resale.
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If an aggrieved seller chooses not to resale goods, does he/she have any recourse againt the buyer in breach?
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2-708(1). If the seller deosnt resell the goods, he may recover from the non-accepting or repudiating buyer "the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages...but less expenses saved in conseuqence of buyer's breach." Thus the seller who chooses not to resell receives the traditional contract/market differential, just as does the buyer who doesnt cover.
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Can seller recover lost profits from a breach of contract?
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2-708(2)allows the court to grant the aggrieved seller expectation damages. There some common situations in which the section will be applied: (1) lost volume seller; (2) middleman (aka jobbers).
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2-708(2) "Lost Profits"
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Seller who has resold in some cases may not be adequately compensated by the contract/market differential. Similarly, the seller who hasnt resold may sometimes not be fully compenated by the contract/market differential. In such cases, 2-708(2) may offer recovery to such sellers:
"If the mesure of damages provided in subsection(1)[contract/market dofferential] is inadequate to put the seller in as good as position as performance would have done, then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by buyer, together with any incidental damages...due allowance for costs reasonably incurred and due credit for payments or proceeds of resale." |
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Why will "lost volume sellers" be allowed to recover "lost profits" under 2-708(2)?
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Many sellers have a relationship to their own suppliers such that they can obtain from the latter as many items as they can sell. When the customer of such a seller breaches his/her contract, and the seller resells the item to another customer at the same price, the seller will end up making 1 fewer sale because of the breach. This is because the new customer would have bought an item anyways, regardless of whether the first customer had breached. The seller in this situation aka "lost volume" seller will be able to use 2-708(2) to recover the profit he/she lost by reason of breach.
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Example of application of 2-708(2).
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P, a manufacturer of hospital surgery tables, contracts to sell one of its tables to D, a hospital, for $300,000. D refuses to take delivery or to pay the balance due under contract. P resells that particular table for the same price it was to be sold to D. P then sues D, asserting that it is entitled to recover its "lost profits" the difference between $300,000 contract price and P's marginal costs in producing the machine. D argues that P sold the machine to X for the same price, so P hasnt suffered any loss.
If P can show that it had enough manufacturing capacity that it could have timely and profitably fulfilled the contract with X (and any other customers for its hospital surgery tables) while also fulfilling the one with D, then P will win. Because under such conditions, P has showed that its a "lost volume seller" and the court will treat the situation as such. Consequently, the court will allow P to recover its profit (including reasonable overhead) which the seller would have made from full performance by the buyer." |
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What if seller had a limited supply of goods, or goods were specially made--can 2-708(2) be applied?
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No. 2-708(2) allows recovery of lost profits primarily in situations in which seller can prove he/she is a "lost volume seller." This means that their supplies werent limited. The items must be reasonably fungible.
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If buyer rejects goods, or revokes his/her acceptance under "proper" situations, does such a buyer have any remedies against seller?
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2-712. The buyer may purchase conforming goods from a 3rd party, and recover from the seller the difference between the contract price and the price he has paid the 3rd person; this is called the right of "cover."
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What is the "duty to cover" principle?
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If the seller either fails to deliver or delivers defective goods which the buyer rejects, the buyer must attempt (usually) to "cover" for the goods if he wants to be elgible for consequential damages. I.e. the buyer must try to purchase substitute goods from another supplier.
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How does 2-712(1) apply the "cover duty" to a buyer who has rejected goods?
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2-712(1) allows buyers to cover. If buyer does cover (i.e. bought substituted goods) 2-712 provides recovery in the difference between the cost of cover and the contract price, in addition any consequential damages.
However, note that 2-715(2)(a) defines "consequential damages" to include only those losses "which couldnt reasonably be prevented by cover or otherwise" in effect provides the buyer must cover where he/she can reasonably do so, and may not recover for those damages which could have been prevented had they covered. |
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According to 2-712(1) what are the conditions in determining the reasonableness of a buyer's cover?
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The substitute goods must be "reasonable" and must be made "in good faith and w/o unreasonable delay."
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In a situation in which buyer can't or doesnt "cover" does he/she have any remedies? (Keep in mind that buyer's omission of not covering must be reasonable under the circumstances)
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2-713(1) allows buyer to recover the difference between the contract price and the market price "at time when buyer learned of the breach." In addition to the contract/market differential, the buyer may also recover any incidental and consequential damages from the breach, but expenses saved by virtue of the seller's breach are deucted from his recover.
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What is the pre-existing duty rule?
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If a party does or promises to do what they already legally obligated todo, of if they forbear or promise to forbear from doing something which they arent legally entitled to do, they havent incurred the kind of "detriment" necessary for their performance or forbearance to constitute consideration. This is the "pre-existing duty" rule.
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What does 2-209(1) have to do with the pre-existing duty rule?
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In the case of contracts to sell goods, 2-209(1) has in effect abolished the pre-existing duty rule. This section provides that "an agreement modifying a contract within this article needs no consideration to be binding." There are some qualifications to this rule, including the duty of good faith and a requirement that if there is no oral modification clause in the original written agreement, the modification must also be written.
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Define 2-209(2)in layman's terms:
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This section says that if the original written agreement states something to the effect of "this contract may not be subsequently modified except in writing" that clause will be enforced and any subsequent oral changes (even if proved beyond a doubt and found to be beneficial to both parties) is not binding.
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What does 2-209(3) say?
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"The requirements of the statute of frauds section of this Article (i.e. 2-201) must be satisfied if the contract as modified is within its provisions.
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What does 2-209(3) mean?
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2-209(3) requires that when a contract is changed or modified the changes must be viewed as if it were the original contract. So to determine whether or not the oral changes of an existing contract is effective, the contract as modified must be treated as if it were an original contract. I.e. both the terms contained in the original contract that are left unchanged, and the the newly changed terms must be examined to see whether anything is within the Statute of Frauds.
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Example of application of 2-209(3):
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Seller orally agrees to sell buyer goods worth $100. A few days later both sides change the contract, so that now the goods are worth $700. The contract modified must meet the Statute of Frauds, so an oral modification would be of no effect.
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Can 2-209(2) be bypassed?
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Yes, it may be overridden by waiver. The no oral modification clause (i.e. 2-209(2)) is flexible somewhat. Because 2-209(4) provides that "although an attempt at modification...doesnt satisfy the requirements of [a valid no oral modification clause] it can operate as a waiver."
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Example of application of 2-209(4):
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Buyer and seller sign a contract containing a no oral modification clause, and also set a delivery date. Buyer later says to seller that the date is "flexible" and seller can take an extra 2 weeks if needed for delivery. If seller relies materially on this statement, buyer will probably be held to have waived the benefit of the no oral modification clause and will thus be held to have effectively modified the contract to provide for a later delivery date.
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How does 2-209(5) fit in with modification of contracts?
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A modification must be in writing if the contract as modified would be within the Statute of Frauds (i.e. more than $500). But even if the Statute of Frauds isn't met (i.e. the modification excusing the condition is oral, and the contract is for more than $500), 2-209(4) says that an "attempt at modification" may "operate as a waiver". But such a waiver may be retracted, "unless retraction would e unjust in the view of a material change of position in reliance on the waiver." This last section is 2-209(5).
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