UCC Damages Q3

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Marinara Incorporated is a large producer of tomato sauces. It contracts with a garlic distributor, Cloves and Sons, for the delivery of 600 pounds of fresh #1 garlic at $2 per pound, delivery to be made on April 1 to Marinaras plant. On April 1 Cloves & Sons brings around several crates of garlic. Marinaras purchasing director discovers that the garlic in these crates is only of #2 quality, and in addition isnt all that fresh. The purchasing director rejects the delivery. A month later, when Marinaras stock of garlic is running low, the purchasing director buys 600 pounds of #1 garlic from another distributor for the then-market price of $3.50 per pound. (The market price of garlic has been rising steadily since the end of the summer due to an unexpectedly poor garlic harvest.) Should Marinara Incorporated have any difficulty in collecting the $1.50 difference per pound from C

-- Anonymous, November 02, 1998


loves & Sons?

-- Anonymous, November 02, 1998

I think Marinara will have a difficult time collecting the $1.50 per pound since section 2-713 specifies that the buyer is entitled to damages measuring the difference in market price *at the time when the seller breached* minus the contract price. The only possibility for recovery might be if Marinara claims the extra $1.50 per pound as incidental or consequential damages resulting from the breach. This might be tough to do, however, since Marinara waited a month before it purchased more garlic. I think justice is better served by not making Cloves & Sons pay damages because, let's face it, their reputation is shot. Also, would Cloves & Sons be liable for consequential damages if Marinara had waited a year to buy more garlic and the market price had quadrupled? I don't think so.

-- Anonymous, November 08, 1998

Again, I agree with Rebecca that unless the price of #1 garlic on April 1 (time of breach) was $3.50/lb., Marinara will have a difficult time recovering $1.50/lb. in damages since it is only entitled to the difference between the contract price and the market price at the time of breach.

However, I don't fully agree that Cloves and Sons need not pay any damages. I think they are still required by justice to pay Marinara the difference between the contract and market prices at the time of breach. It does not necessarily follow that their reputation is shot and that that alone suffices as punishment -- granted, Marinara may never again buy from them, but depending upon the fluidity of information in the tomato sauce market, other sauce producers may not get wind of this breach, may still continue to contract with Cloves and Sons, and Cloves will not have been deterred from breaching again with them if they have been freed from their duty to pay damages to Marinara in this case.

-- Anonymous, November 08, 1998

I agree in general with the comments above; my concern is with the correct UCC section to reference. Shouldn't this be covered by 2-712(1) -- the buyer must cover "without unreasonable delay"? 2-713's title says "Non-delivery or Repudiation", so I assume it is not meant to cover buyer rejection. Opinions?

-- Anonymous, November 08, 1998

Ignore my previous post please, as I appear to have been smoking crack at the time I wrote it.

-- Anonymous, November 08, 1998

Okay, here's my last post before I swear off computers in an attempt to stop making an ass of myself.

I am confused about when to look at 2-712 and 2-713. My current theory is: If the buyer does cover, we look at 2-712. If the buyer simply sues for damages, we look at 2-713. Either way, it doesn't matter if we got to a breach via non-performance, repudiation by seller, or rejection by buyer. This seems to be the meaning of 2-711, and therefore some of these USS questions should be issues for 2-712 interpretation, not 2-713. Does that seem reasonable?

-- Anonymous, November 08, 1998

I agree with Green, except for one point. She writes "that the buyer is entitled to damages measuring the difference in market price *at the time when the seller breached* minus the contract price."

I believe that the buyer is entitled to damages measuring the difference in market price at the time *the buyer discovers the seller's breach* minus the contract price. The seller breaches the contract at the moment the boxes destined for buyer are packed with the inferior garlic. Now suppose that the buyer receives these boxes a week later on the agreed upon delivery-date. At this time, the buyer discovers the garlic is not of the quality the parties agreed upon. The buyer needs to cover and is entitled to the price of garlic on that day of discovery.

In this scenario, the answer is the same either way because it appears as if the seller's breach and the buyer's discovery of such breach occur on the same day. Chances are that this is just some nit-picky distinction, but I thought I would raise the point.

-- Anonymous, November 09, 1998

In response to Christian's question whether we should be looking at 2-712 rather than 2-713, I guess it depends on how long the statutue of limitations is, so to say, for resorting cover as a remedy. Or more specifically, in this case, where they buyer purchases what he had contracted for in the breached contract a month after the indended K date, does such purchase still qualify as cover under 2-712? Or is it too late to be a covering action, in which case the buyer can just sue for damages under 2-713.

My instinct is that this purchase might not qualify as covering -- the text says Marinara purchased the garlic a month later "when its stock of garlic was running low." I interpret this to mean that on April 1, when the contract was breached, Marinara figured it didn't really need the garlic then anyway, so decided not to cover but instead to rely on its right to sue for damages.

However, one thing that would support the side claiming that the May 1 purchase qualifies as cover is the fact that Marinara purchased the exact same amount of the exact same product as specified in the contract -- indicating that they were merely buying this all to take the place of what they would have had, had the K been performed.

I guess it all depends on how long you technically have to effect cover of a breached contract. Any ideas?

-- Anonymous, November 12, 1998

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