Notes - Neri v. Retail Marine Corp. | Kessler, Gilmore & Kronman | September 27, 2012

H2O Notes - Neri v. Retail Marine Corp.

by Kessler, Gilmore & Kronman



1. The principal case involved a so-called lost-volume seller (a term invented by Professor Harris, who wrote several articles on the subject, one of which is cited by the court in footnote 49.)[51] In one respect, the lost-volume seller is in the same predicament as the buyer of goods or services who claims to have suffered consequential damages; neither can be made whole — put in the position that performance would have put him in — if his recovery is limited to the contract-market differential. By hypothesis, a lost-volume seller has made one less sale than he might have, and to be fully compensated must receive the profit on the transaction of which he has been deprived by the buyer's breach; his action is necessarily an action for lost profits. (Though it is not always described in these same terms, the buyer's action for consequential damages also often represents a disguised effort to recover lost profits, as Kerr and Globe Refining suggest.)


2. Would it have made a difference in the outcome of the case if the defendant had been a manufacturer of boats rather than a retail dealer? Dean Hawkland (in the passage from his treatise quoted in the opinion) focuses exclusively on the situation of the dealer. Is his argument restricted to dealers? Hawkland assumes that a dealer has, or can get, an unlimited supply of whatever it is he is selling. Is this true? Is it more true for dealers than for manufacturers?


3. What is the meaning of the concluding phrase in §2-708(2) (". . . due allowance for costs reasonably incurred and due credit for payments or proceeds of resale")? Reread footnote 49 to Neri. Does it seem that the interpretation of the clause offered there has anything to do with the lost- volume problem at issue in Neri? Suppose a seller of goods, after learning that his buyer has repudiated their agreement, decides to scrap the goods and sell them for their junk value. How should his damages be measured? To be fully compensated, it would seem, he should receive the profit he expected to make on the breached contract. Here, then, is another application for the lost profits formula of §2-708(2): one arising out of a situation, quite different from Neri, in which the otherwise puzzling clause at the end of that section makes perfect sense. See Harris, A Radical Restatement of the Law of Seller's Damages: Sales Act and Commercial Code Results Compared, 18 Stan. L. Rev. 66, 97-98 (1965). For more on this problem, and its relation to the seller's duty to mitigate damages, see Clark v. Marsiglia, infra p. 1313.


4. Consider the following argument: In a perfectly competitive market (one in which every seller must take the market price as given, i.e., is unable to influence the quantity of goods he sells by varying their price), a seller interested in maximizing his profits will produce up to, but not beyond, the point where the marginal cost of his last sale just equals the marginal revenue he derives from it. A seller may have the technical capacity to increase his output beyond this point but he will not do so, since any such increase would diminish his overall profits. If we assume that he is already producing at his level of maximum profitability, then a breach by one of his buyers will of course give the seller an incentive to replace the lost transaction, but the second or replacement sale is by hypothesis not one he would have made in the absence of his buyer's breach. Thus, in a truly competitive market, a rational seller will never be in the position that the plaintiff in Neri claimed to be in and consequently should not be allowed to recover lost profits.


Do you agree? Does the same argument hold where the seller enjoys a degree of "market power" (i.e., is able to raise his price and still sell at least some goods — a result that would be impossible in a perfectly competitive market)? See Goetz & Scott, Measuring Sellers' Damages: The Lost-Profits Puzzle, 31 Stan. L. Rev. 323 (1979).


[51] The others are: A General Theory for Measuring Seller's Damages for Total Breach of Contract, 60 Mich. L. Rev. 577 (1962), and studies of the Michigan cases (61 Mich. L. Rev. 849 (1963)), the New York cases (34 Fordham L. Rev. 23 (1965)), and the California cases (18 Stan. L. Rev. 553 (1966)).


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June 02, 2014 Notes - Neri v. Retail Marine Corp. Notes - Neri v. Retail Marine Corp.

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