UCC Damages Q5

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7. Marinara Incorporated, the tomato sauce manufacturer, contracts to buy a large amount of oregano from Herb, a spice and herb distributor, for $15 a pound. Delivery is to be made to Marinaras plant on or before May 15. By May 15 no shipment of oregano has arrived. The market price for oregano in the vicinity of Marinaras plant is $18 per pound. The Marinara purchasing director contacts a spice merchant who has been trying to attract the saucemakers business and is willing to sell him the needed quantity of oregano for $17 a pound. The purchasing director makes the purchase on Marinaras behalf. Marinaras legal department then brings suit against Herb claiming damages in the amount of $3 per pound under '2-713. Is Marinara entitled to t

-- Anonymous, November 02, 1998


o this amount?

-- Anonymous, November 02, 1998

I think Marinara is entitled to the full $3 per pound. The market price at the time of breach was $3 above the contract price, which is the measure of damages according to section 2-713. The exception for subtracting "expenses saved in consequence of the seller's breach" I would argue, is not applicable here since the $17 ($1 savings) deal did not arise as a *consequence* of the seller's breach, but because of a non-market based factor. I think the exception is meant to apply to cases like the one we read where the buyer actually saves from the breach itself (when the contract price was higher than the market price at time of breach.)

-- Anonymous, November 08, 1998

I agree with Rebecca that Marinara should be entitled to $3 per pound in damages. Marinara has the choice of either covering for the oregano and suing for the difference between cover and contract price, or of suing for damages according to the "market price at time of breach minus contract price" formula. Here, Marinara has chosen to sue for damages, and thus gets the difference between $18 (market price at time of breach) and $15 (contract price), or $3. I do not think that the fact that Marinara was able to cover at a different price should affect its ability to recover damages based on the market value.

In Rebecca's post, she talks about how the $1 savings on the $17/lb. price should not be considered an "expense saved in consequence of the seller's breach". I agree, but primarily on the grounds that I do not think, as stated above, that the cover price should in any way factor into the formula for damages calculation. However, Rebecca's point brought up a broader question in my mind -- what exactly does the UCC mean when it refers to these "expenses saved in consequence" that need to be factored into the formula? Rebecca notes that she thinks that an example of such an expense saved is in the case we read (I'm assuming Acme Mills) where the contract price was higher than market price. I'm not sure whether this is really what the UCC is referring to. The reason I'm unsure is because if you do the math, then in the Acme case, if Acme were determining whether it should sue Johnson and wanted to figure out how much it could recover in damages, it would apply the formula "(mkt price at time of breach - contract price) - expenses saved" Which would yield:

($0.975 - $1.03)- $0.055 (5.5 cents being the amount saved if Acme had covered, which is what I assume Rebecca's referring to) = -0.055 -$0.055

Now what I don't get about this is that from the first part of the forumla alone, Acme could tell that there is no point in its suing Johnson because it would not be able to recover any damages (theoretically, it would have to PAY Johnson 5.5 cents if it sued, which would keep it from suing). Since the pointlessness of suing is already evident, why would the framers of the UCC add this additional bit of having to subtract from that the expenses saved (assuming here that expenses saved is the savings from being released from the higher-priced contract)? Making the negative value of suing even greater does not really serve any purpose -- Acme can already see that it has no hope in suing; why would the UCC framers add this merely to show Acme that there is even less hope in suing? For this reason, my interpretation of this all as outlined above leads me to believe that this is not the sort of "expenses saved" that the UCC is referring to. However, I cannot figure out an example of an "expense saved" that would really make sense in the damages formula. Can anyone help shed some light on this? Or let me know if my reasoning outlined above is way off in some sense -- many thanks for any suggestions that might help clarify my confusion here.

-- Anonymous, November 08, 1998

Emmeline raises a really good point. If I understand it correctly, could one reason why the UCC is bothering to count for expenses saved be that the whole equation might be affected by that figure in a more complex case? For example, I contract with Emmeline to buy garlic for $5 per pound to be delivered in a month, Emmeline does me wrong and doesn't deliver, and then I cover by buyer the garlic for the then market price of $7. BUT, in between the time we contracted and the time she breached, a revolutionary new way of making spagetti sauce emerged where you only need one clove per jar rather than two. Does this count as expenses saved? In that case do damages only total $1 (1/2 of the $2 breach)? I know this is a little (way) out there, but what do people think?

-- Anonymous, November 09, 1998

OOPS! After a day of sitting on my previous post, and re-reading it (and re-reading UCC 2-713), I've realized that one of my premises was completely incorrect, which means that today, at least, my mind reasons that Marinara cannot recover $3/lb., but only $2/lb, the difference between the cover and the contract prices.

My funamentally wrong premise, I realized, was my belief that the fact that Marinara chose to cover should NOT affect its ability to sue for damages. In fact, it does affect its ability. Re-reading 2-713, it seems that while Marinara does have the CHOICE to either cover or sue for damages, once it covers, it cannot sue for damages on market price, but can only recover the difference between the cover and contract prices (see Officeial comment point 5. "the present section provides a remedy which... applies only when and to the extent that the buyer has not covered.")

Which means that I think, Marinara can only recover $2/lb. I guess I had forgotten last night (partially because I still have trouble accepting Holmes) that the intent behind rewarding damages is not to punish the breacher (since we ought to allow efficient breaches) but rather, to put the victim of the breach in the same position they would have been in had the contract been performed. Which in this case, requires only repaying them the $2 difference per pound between the contract and cover price. If we gave them $3/lb as I had initially said, they would be better off than if the contract had been performed, for they would have gotten a profit of $1/lb. from the remedy.

Sorry for the Dr. Jekyll/ Mr/ Hyde-ish complete flip-flop in my postings on this question, but I guess I didn't quite understand 2-713 yesterday/ hadn't quite put it all together yet. And it is entirely possible that this answer, too, incorrectly applies 2-713, but at least this is how I'm understanding things today. My question about the meaning of "expenses saved in consequence of seller's breach" still holds, though, and am eagerly looking for anyone's guidance on that.

-- Anonymous, November 09, 1998

OK so I guess in a roundabout way, Emmeline and I both came to see the light (?)... My point about the revolution in saucemaking would I suppose be the same as if Marinara got a deal (expenses saved) as they did in the question presented. SO, this is all to say that I agree with Emmeline that recovery should be $2 not $3, that is, assuming my brain which is now mush after today's class is functioning. Are we/ am I crazy?

-- Anonymous, November 09, 1998

In answer to the point Emmeline made, I thought expense saved would include aggrieved party's getting a lower price while covering. This _would_ be redundant if damage to the aggrieved party is only the difference between cover price and contract price. But since damage also includes those which are incidental and consequential, it's possible for aggrieved party to both get a cover price which is lower than the original contract price and still get damages from the breacher--if the incidental and consequential damages due to the breach was larger than the expense saved as a result of the lower cover price.


-- Anonymous, December 30, 1998

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