George Mason School of Law

George Mason School of Law Contracts II The Lost Volume Seller F.H. Buckley fbuckley@gmu.edu

What’s a Beyer to do? • Beyer agrees to buy a Corvette Pace Car from Sehler for $15,000. Before delivery, and before Beyer pays anything down, Sehler reneges. • Beyer knows that he can buy the same car from another deal for the same price.

What’s a Beyer to do? • Beyer agrees to buy a Corvette Pace Car from Sehler for $15,000. Before delivery, and before Beyer pays anything down, Sehler reneges. • Beyer knows that he can buy the same car from another deal for the same price. • What are Beyer’s damages?

What’s a Sehler to do? • Beyer agrees to buy a Corvette Pace Car from Sehler for $15,000. Before delivery, and before Beyer pays anything down, Beyer reneges.

What’s a Sehler to do? • Beyer agrees to buy a Corvette Pace Car from Sehler for $15,000. Before delivery, and before Beyer pays anything down, Beyer reneges. • Sehler has purchased 10 such cars from GM for $10,000 each and cannot acquire an additional one.

What’s a Sehler to do? • Beyer agrees to buy a Corvette Pace Car from Sehler for $15,000. Before delivery, and before Beyer pays anything down, Beyer reneges. • Sehler has purchased 10 such cars from GM for $10,000 each and cannot acquire an additional one. • The day after Beyer’s breach, Sehler finds a replacement buyer and sells the car for $15,000. What is Beyer’s liability?

What’s a Sehler to do? • Beyer agrees to buy a Corvette Pace Car from Sehler for $15,000. Before delivery, and before Beyer pays anything down, Beyer reneges. • Sehler has purchased 10 such cars from GM for $10,000 each and cannot acquire an additional one. • The day after Beyer’s breach, Sehler finds a replacement buyer and sells the car for $15,000. What is Beyer’s liability? • Where there is no “lost volume,” and the car is resold at the same price, only incidental damages

What’s a Sehler to do? • Where there is no “lost volume,” and the car is resold at the same price, only incidental damages • UCC 2-708(1)

What’s a Sehler to do? • Beyer agrees to buy a Corvette Pace Car from Sehler for $15,000. Before delivery, and before Beyer pays anything down, Beyer reneges. • Sehler has purchased 10 such cars from GM for $10,000 each and cannot acquire an additional one. • Same facts. There is a market for the car, but Sehler doesn’t bother trying to resell it. What is Beyer’s liability?

What’s a Sehler to do? • Beyer agrees to buy a Corvette Pace Car from Sehler for $15,000. Before delivery, and before Beyer pays anything down, Beyer reneges. • Sehler has purchased 10 such cars from GM for $10,000 each and cannot acquire an additional one. • Same facts. There is a market for the car, but Sehler doesn’t bother trying to resell it. What is Beyer’s liability? • UCC § 2-708(1): semble no damages

What’s a Sehler to do? • Same facts. There is a market for the car, but Sehler doesn’t bother trying to resell it. What is Beyer’s liability? • Sehler is incentivized to resell in mitigation.

What’s a Sehler to do? • Beyer agrees to buy a Corvette Pace Car from Sehler for $15,000. Before delivery, and before Beyer pays anything down, Beyer reneges. • Sehler has purchased 10 such cars from GM for $10,000 each and cannot acquire an additional one. • Same facts but now Sehler tries to resell the car and can only do so for scrap for $1,000. What is Beyer’s liability? • What would you say Sehler lost?

What’s a Sehler to do? • Same facts but now Sehler can’t find a replacement buyer and sells the car for scrap for $1,000. What is Beyer’s liability? • Seller might invoke 2-708(2) if he can’t reasonably effect a resale

What’s a Sehler to do? • Same facts but now Sehler can’t find a replacement buyer and sells the car for scrap for $1,000. What is Beyer’s liability? • UCC § 2-708(2) • “profit” • “reasonable overhead” • “proceeds of resale”

What’s a Sehler to do? • Beyer agrees to buy a Corvette Pace Car from Sehler for $15,000. Before delivery, and before Beyer pays anything down, Beyer reneges. • Sehler has purchased 10 such cars from GM for $10,000 each • Now assume that Sehler can acquire additional cars from manufacturer.

What’s a Sehler to do? • Beyer agrees to buy a Corvette Pace Car from Sehler for $15,000. Before delivery, and before Beyer pays anything down, Beyer reneges. • Sehler has purchased 10 such cars from GM for $10,000 each • Now assume that Sehler can acquire additional cars from manufacturer • There’s a market out there for the cars, but Sehler doesn’t resell the car. What damages against Beyer?

What’s a Sehler to do? • Beyer agrees to buy a Corvette Pace Car from Sehler for $15,000. Before delivery, and before Beyer pays anything down, Beyer reneges. • Sehler has purchased 10 such cars from GM for $10,000 each • Now assume that Sehler can acquire additional cars from manufacturer • There’s a market out there for the cars, but Sehler doesn’t resell the car. What damages against Beyer? • UCC 2-708(1): Has Sehler failed to mitigate?

What’s a Sehler to do? • Beyer agrees to buy a Corvette Pace Car from Sehler for $15,000. Before delivery, and before Beyer pays anything down, Beyer reneges. • Sehler has purchased 10 such cars from GM for $10,000 each • Now assume that Sehler can acquire additional cars from manufacturer. • Now Sehler resells the car to a replacement buyer for $15,000. What is Beyer’s liability?

What’s a Sehler to do? • Now Sehler resells the car to a replacement buyer for $15,000. What is Beyer’s liability? • We’re assuming that Sehler could have sold the car to Beyer and also an 11th car to the new buyer.

What’s a Sehler to do? • Now Sehler resells the car to a replacement buyer for $15,000. What is Beyer’s liability? • We’re assuming that Sehler could have sold the car to Beyer and also an 11th car to the new buyer. • But would the $10,000 purchase price from GM be counted as “overhead” under 2-708(2)?

What’s a Sehler to do? • How well off would Sehler be if he had sold both cars?

What’s a Sehler to do? • How well off would Sehler be if he had sold both cars? • He starts with his 10th car

What’s a Sehler to do? • How well off would Sehler be if he had sold both cars? • He starts with his 10th car • Which he sells to Beyer for $15,000

What’s a Sehler to do? • How well off would Sehler be if he had sold both cars? • He starts with his 10th car • Which he sells to Beyer for $15,000 • From which he buys a car from GM for $10,000, leaving him $5,000

What’s a Sehler to do? • How well off would Sehler be if he had sold both cars? • He starts with his 10th car • Which he sells to Beyer for $15,000 • From which he buys a car from GM for $10,000, leaving him $5,000 • He sells the 11th car for $15,000, which with the $5,000 gives him $20,000

What’s a Sehler to do? • How well off would Sehler be if he had sold both cars? • He starts with his 10th car • Which he sells to Beyer for $15,000 • From which he buys a car from GM for $10,000, leaving him $5,000 • He sells the 11th car for $15,000, which with the $5,000 gives him $20,000 • So compensatory damages should leave Sehler with $20,000

What’s a Sehler to do? • What kind of damages should Sehler get from Beyer to leave him with $20,000?

What’s a Sehler to do? • What kind of damages should Sehler get from Beyer to leave him with $20,000? • He sells the car to the replacement buyer for $15,000, leaving him $5,000 short…

Davis v. Diasonics at 926 Diasonics medical equipment $300,000 deposit Davis

Davis v. Diasonics at 926 • Resale at the same price • What is needed to invoke UCC § 708(2)?

Davis v. Diasonics at 926 • Resale at the same price • What is needed to invoke UCC § 708(2)? • Seller could have sold to both

Davis v. Diasonics at 926 • Resale at the same price • What is needed to invoke UCC § 708(2)? • Seller could have sold to both • It would have been profitable for seller to sell to both • What does this mean?

Davis v. Diasonics at 926 • Back to my example of the car sales. We are assuming: • There was an infinite supply of cars from the manufacturer for $10,000 each • That the seller had bought 10 cars • That he could have profitably sold a car to both the defaulting and the new buyer (i.e., 11 cars in total)

Davis v. Diasonics at 926 • But Diasonics (Goetz and Scott) ask us to question the last assmption: • There was an infinite supply of cars from the manufacturer for $10,000 each • That the seller had bought 10 cars • That he could have profitably sold a car to both the defaulting and the new buyer (i.e., 11 cars in total)

Davis v. Diasonics at 926 • But Diasonics (Goetz and Scott) ask us to question the last assmption: • That he could have profitably sold a car to both the defaulting and the new buyer (i.e., 11 cars in total) • Suppose that to do so Sehler would have needed a bigger car lot and that it decided that this was not cost-effective

Davis v. Diasonics at 926 • But Diasonics (Goetz and Scott) ask us to question the last assmption: • That he could have profitably sold a car to both the defaulting and the new buyer (i.e., 11 cars in total) • The Goetz-Scott challenge: wouldn’t seller always pick the number of cars it wants to sell at a break-even point • marginal revenue = marginal cost

Davis v. Diasonics at 926 • The Goetz-Scott challenge: wouldn’t seller always pick the number of cars it wants to sell at a break-even point • So what would you need to rebut this—on remand in Diasonics?

Davis v. Diasonics at 926 • The Goetz-Scott challenge: wouldn’t seller always pick the number of cars it wants to sell at a break-even point • So what would you need to rebut this—on remand in Diasonics? • A change in the market? We didn’t think we’d want to sell 11, but that was then.

Davis v. Diasonics at 926 • The Goetz-Scott challenge: wouldn’t seller always pick the number of cars it wants to sell at a break-even point • So what would you need to rebut this—on remand in Diasonics? • We really planned to sell 11 all along.

Rodriguez at 929

Rodriguez at 929 • Liquidated damages of a $250k deposit • Resale to Circus Circus at at $1.8M profit

Rodriguez at 929 • Could Learjet have sold to both Rodriguez and Circus Circus?

Rodriguez at 929 • Could Learjet have sold to both Rodriguez and Circus Circus? • At 60 % capacity

Rodriguez at 929 • Could Learjet have profitably sold to both Rodriguez and Circus Circus? • At 60 % capacity • Does this prove they could have sold more profitably, asks the casebook

Rodriguez at 929 • Can you draw any inferences about the lost volume seller from the willingness of merchants to sell to consumers on the basis of “goods satisfactory or money refunded”?

Personal Services Contracts • Gianetti at 933

Charitable Contributions • 375 Park Avenue at 934 • Could a donor who reneges claim that the donee was not a “lost volume seller because it had unlimited naming opportunities?

George Mason School of Law