Sunday, October 16, 2011

Calculating Damages under the UCC.

Calculating damages under the UCC certainly isn't one of the more interesting legal topics tested on the MBE, but it comes up, and so it's necessary to understand the calculations. This note will discuss damages, as they are calculated if the seller breaches the contract, or if the buyer breaches the contract.

Buyer's Damages:

The basic calculation of damages for a buyer where the seller does not deliver the goods, or if the seller does deliver those goods but the goods are defective and the buyer rightfully rejects them, is the difference between the contract price and either the market price or the cost of buying replacement goods. Then, once that calculation has been performed, incidental and consequential damages should be added, and expenses saved as a result of the seller's breach should be deducted.

So, let's say buyer and seller enter into a valid contract for the sale of 300 widgets (it always seems to be widgets), with each widget at a price of 10 dollars. 300x10=1000 dollars, the contract price. If the seller does not deliver those widgets, then the next step is to determine the market price of the widgets (assuming that buyer has not chosen to purchase replacement goods). Let's assume the market price of the widgets is 15 dollars per widget. The difference between the contract price of one widget, and the market price of one widget is 5 dollars, and the contract contemplated the purchase of 300 widgets. Multiply 5x300, and the result provides damages to the buyer of $1,500. Then add consequential damages and incidental damages, and subtract any expenses that buyer may have saved due to seller's breach.

Another option for the buyer is to accept the goods, even if those goods deviate from what was contemplated under the contract (ie, they are defective). If the buyer decides to accept defective goods, the buyer is entitled to the difference between the value of the goods delivered, and the value they would have had if they had conformed to the contract, plus incidental and consequential damages. Note that for the buyer to recover these damages, he must notify the seller within a reasonable time after he discovers the breach.

Seller's Damages:


Assume now that the seller has performed his obligations under the contract by providing buyer with goods that conformed to the contract, but buyer refuses to accept those goods, or accepts them, and then later repudiates that acceptance. The seller has a few options here. Seller can either recover the difference between the market price and the contract price, or resell the goods and recover the difference between the contract price and the resale price.

This is almost identical to the analysis as discussed above in regard to seller's breach. So, for example, using the same 300 widgets as discussed above, let's assume the contract called for the sale of each widget at a price of 10 dollars, and the market price of each widget is 5 dollars. The contract contemplated for the sale of 300 widgets, so multiply 5x300, which results in seller's damages of 1,500 dollars (assuming seller has chosen not to resell the goods). Then add incidental damages.

Note that the seller also has one additional option if the above calculations will not put the seller in as good a position as he would have been in if the buyer had not breached. This will be the case if, for example, seller has an unlimited supply of products. If seller has an unlimited supply of products, then seller will not be in as good a position as he would have been if buyer had not breached if, upon buyer's breach, seller merely recovers the difference between the contract price and market price, or contract price and re-sale price. Those prior calculations attempt to put seller in a position he would have been in had he sold the goods to buyer 2 rather than buyer 1 who breached. But if seller has an unlimited supply of goods, he could have sold the goods to buyer 1, and buyer 2. This "lost profits" measure of damages allows seller to recover the difference between the list price and the cost to the seller (ie, the seller's lost profits).



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