Sam contracts to buy Daves used car for $3,000. He gives Dave $800 as a down-payment on the car. The next day he calls Dave and tells him that the money he was counting on to complete the deal would not be coming his way and he is going to have to back out of the deal. Dave tells him, "Thats all right. These things happen." Two weeks later when Sam next sees Dave he asks for his $800 back. Dave tells him that fortunately he was able to sell the car to someone else for $3,100, but that he has no intention of returning to Sam his money. "I said it was all right, that I wasnt going to hold you to the deal or sue you or anything," explains Dave, "but you certainly cant expect to get your money back. After all, it was you who backed out. I was ready to sell to you." Sam decides not to get into a fight with Dave right there on the street, but now he is wondering: Is there any way he can legally recover his $800? Look at '2-71

-- Anonymous, November 02, 1998

Answers

8(2) and (3).

-- Anonymous, November 02, 1998

Based on my takeaways after reading UCC 2-718, it seems that Dave most likely will not be able to recover the full amount of his $800, but should be able to recover some of it ( at most $300, less any incidental damages Sam might be able to prove for care and custody of the car for two extra weeks.) I am deducing from the facts that Sam is a regular guy (not a used auto dealer) with but one used car to sell.

2-718(2) allows Dave to recover the amount by which his down-payment exceeds either 20% of the contract price (which here amounts to $600) or $500, whichever is less. Since $500 is less, we take $800-$500 and find out that he can recover $300 from this clause. This assumes that there were no liquidated damages specified in the contract (could not tell any from the facts given).

However, 2-718 (3) then says that this $300 may be offset by (1) damages Sam can recover and (2) benefits that Dave received by reason of the contract. It doesn't seem that Dave received any benefits. However, in terms of damages that Sam can recover, since he chose to resell the car, we need to look at look at 2-706, which says Sam can recover the difference between the resale price and the contract price (here Sam actually resold the car for more, and he gets to keep the extra $100 profit) PLUS any incidental damages, which Sam might have sustained from the additional two weeks of care and custody of the car. Thus, Dave can recover $300 minus any such incidental damages.

Unlike in the Neri case, since Sam only had one car to sell, we need not consider whether any additional damages for lost profits had to be further deducted from the $300.

-- Anonymous, November 09, 1998

One more quick question about the UCC:

I am not sure if we already discussed this in class, but on reading over 2-718 I was wondering what the rationale behind 2-718(2)(b) is. In the hypothetical posted by Prof. Lessig, it would seem that Dave is more than as well off as he would have been had the contract been performed. And it seems that Sam was penalized for the breach by $800. But from the discussion in the same section about liquidated damages it seemed clear that this is a result the UCC wanted to avoid. Any clarification would be greatly appreciated.

Tawen

-- Anonymous, December 30, 1998