10.3.7.2 Notes - Panhandle Agri-Service Inc. v. Becker | Kessler, Gilmore & Kronman | September 26, 2012

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10.3.7.2 Notes - Panhandle Agri-Service Inc. v. Becker

NOTE

1. Under the Uniform Commercial Code, an aggrieved buyer may either "cover," that is, make an actual substitute contract for the goods his original seller had promised to deliver (in which case he is entitled to the difference between cover and contract price), or he may simply sue for the difference between the contract price and the market price at the time he learns of the breach. The latter formula is designed to compensate the buyer for the loss he would have suffered if he had re-entered the market and made a substitute purchase following the seller's breach, whether he has in fact done so or not. Put differently, the buyer's cover remedy contemplates an actual substitute transaction, while his market damages are based upon the assumption of a hypothetical one. The seller has a mirror-image pair of remedies; see U.C.C. §§2-706(1) and 2-708(1). If a buyer actually makes a substitute purchase, is he still free to measure his damages according to the hypothetical transaction yardstick of §2- 713? Should he be? More generally, why should the buyer ever be allowed to claim damages under §2-713 if it is possible for him to cover? Is the buyer's right to choose between cover and market damages intended to protect the buyer or the seller? Or both? For a lucid discussion of these and related questions, see Peters, Remedies for Breach of Contracts Relating to the Sale of Goods Under the Uniform Commercial Code: A Roadmap for Article Two, 73 Yale L.J. 199 (1963).

2. Suppose that after Becker's breach, Panhandle had arranged to purchase hay from an Oklahoma farmer, the hay to be delivered to Pan- handle's warehouse in Garden City, Kansas. Assume the price of the hay under the second contract is $65 a ton,  that the contract calls for delivery of the hay "F. O. B. buyer's warehouse, Garden City, Kansas" and that the expected cost of transporting the hay from Oklahoma to Garden City is $5 a ton. How should Panhandle's damages be measured under §2-712(2)? For the meaning of the F.O.B. see §2-319. Suppose Panhandle arranges to have the hay it purchases in Oklahoma shipped directly to Texas for resale. If the cost of transporting the hay from Oklahoma to Texas is less than the cost of shipping it to the same destination from Garden City, Kansas, should Panhandle's damages be reduced by an amount equal to the difference in transportation costs?

3. Compare the damage rules of §§2-708(1) and 2-713(1). You will notice that for purposes of measuring the seller's damages, the relevant market price is the one existing at the time of "tender," whereas the buyer's market damages are measured against the price prevailing at the time he "learned of the breach." These two moments often coincide but where one of the parties has repudiated his obligation before the time of tender, they may not. In cases of anticipatory repudiation, therefore, it will make a difference which formula is used to measure the contract-market differential. For more on the problem of anticipatory repudiation, see the cases collected in Section 5 of this chapter. Does one formula seem to you, on the whole, preferable? What explains this discrepancy in the treatment of buyer’s and seller’s damages? Consult J. White & R. Summers, Uniform Commercial Code §7.7 (2d ed. 1980).

4. As the principal case points out, a buyer's failure to cover will not deprive him of his right to compensation under the contract-market rule. It may, however, bar his recovery of consequential damages under §2-715(2). Why should the buyer's failure to cover have this effect? All things considered, would a rule that measured damages by the aggrieved party's loss of profits be preferable to the contract-market differential? Under what circumstances will these two approaches yield identical results? Different results? Which, in the majority of cases, better accomplishes the basic aim of compensation — to place the injured party in the position he would have been in if the contract had been performed?

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September 30, 2013

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