7.4 UCC Article 2 Buyer's and Seller's Remedies

UCC Article 2 Buyer's and Seller's Remedies

I. UCC Article 2: Buyer's Remedies Framework

When a commercial seller defaults (by failing to deliver, repudiating, or tendering non-conforming goods that the buyer rightfully rejects or revokes), the UCC grants the buyer a comprehensive battery of remedies:

                               ┌─────────────────────────────┐
                               │    UCC Buyer Remedies Menu  │
                               └──────────────┬──────────────┘
                                              │
         ┌────────────────────────────────────┼────────────────────────────────────┐
         ▼                                    ▼                                    ▼
   [Cover Formula]                      [Market Formula]                    [Accepted Goods]
  UCC § 2-712                          UCC § 2-713                         UCC § 2-714
- Actual substitute purchase         - Hypothetical market calculation   - Retained defective goods
- (Cover Price - Contract Price)     - (Market Price - Contract Price)   - (Value as Warranted minus
  + Incidentals + Consequentials       + Incidentals + Consequentials       Value as Accepted)
  - Expenses Saved                     - Expenses Saved                    + Incidentals + Consequentials

1. Buyer's Cover Remedy (UCC § 2-712)

• Rule: The buyer may "cover" by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.
• Statutory Formula:

$\text{Cover Damages} = (\text{Cover Price} - \text{Contract Price}) + \text{Incidental Damages} + \text{Consequential Damages} - \text{Expenses Saved}$

• Nature of Cover: Covering is optional, not mandatory. However, under UCC § 2-715(2)(a), if the buyer fails to cover when cover is reasonably available, the buyer is barred from recovering any consequential damages that could have been prevented by covering.

2. Buyer's Market Damages Remedy (UCC § 2-713)

• Rule: If the buyer elects not to cover, or fails to effect a valid cover, the buyer may recover market damages based on the hypothetical market price.
• Statutory Formula:

$\text{Market Damages} = (\text{Market Price at Time Buyer Learned of Breach} - \text{Contract Price}) + \text{Incidental} + \text{Consequential} - \text{Expenses Saved}$

• Measurement Point: Market price is determined at the time when the buyer learned of the breach, measured at the place for tender.

3. Buyer's Damages for Accepted Non-Conforming Goods (UCC § 2-714)

Where the buyer has accepted non-conforming goods and given seasonable notice of breach under § 2-607(3):

• Statutory Formula:

$\text{Breach of Warranty Damages} = \text{Value of Goods as Warranted} - \text{Value of Goods as Accepted} + \text{Incidentals} + \text{Consequentials}$

• Measurement Point: Evaluated at the time and place of acceptance.

4. Buyer's Incidental vs. Consequential Damages (UCC § 2-715)

• Incidental Damages (§ 2-715(1)): Expenses reasonably incurred in inspection, receipt, transportation, and care/custody of rightfully rejected goods, commercially reasonable charges in effecting cover, and expenses incident to the delay.
• Consequential Damages (§ 2-715(2)): (a) Any loss resulting from general or particular requirements of which the seller at the time of contracting had reason to know (foreseeability) and which could not reasonably be prevented by cover; and (b) injury to person or property proximately resulting from breach of warranty.

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II. UCC Article 2: Seller's Remedies Framework

When a buyer wrongfully repudiates, breaches, or rejects conforming goods, UCC Article 2 equips the seller with parallel statutory remedies designed to protect the seller's bargain:

1. Seller's Resale Remedy (UCC § 2-706)

• Rule: If the seller resells the identified goods in good faith and in a commercially reasonable manner, the seller may recover the shortfall between the resale price and the contract price.
• Statutory Formula:

$\text{Resale Damages} = (\text{Contract Price} - \text{Resale Price}) + \text{Incidental Damages} - \text{Expenses Saved}$

• Mandatory Notice Requirements:
  • Private Resale: Seller must give the buyer reasonable notification of intention to resell at private sale.
  • Public Resale (Auction): Seller must give the buyer reasonable notice of the time and place of the auction, unless the goods are perishable or threaten to decline in value rapidly.
  • Penalty for Lack of Notice: If seller fails to give required notice, the seller forfeits § 2-706 resale damages and is relegated to § 2-708(1) market damages.

2. Seller's Market Damages (UCC § 2-708(1))

• Rule: If the seller does not resell or resells improperly, the seller recovers the difference between the contract price and the market price.
• Statutory Formula:

$\text{Market Damages} = (\text{Contract Price} - \text{Market Price at Time and Place of Tender}) + \text{Incidental} - \text{Expenses Saved}$

• Contrast with Buyer's Rule: Seller's market price is measured at the time and place for tender (whereas buyer's market price under § 2-713 is measured when the buyer learned of the breach).

3. The Lost Volume Seller Doctrine (UCC § 2-708(2) & Neri v. Retail Marine Corp.)

Under standard resale or market damages, a merchant seller who resells a car or boat to another customer for the same price appears to have suffered zero damages ($10,000 contract - $10,000 resale = $0). However, this creates a severe injustice if the seller is a lost volume seller.

[!IMPORTANT] The Lost Volume Seller Test on the FYLSE: Under UCC § 2-708(2) and the landmark case Neri v. Retail Marine Corp. (30 N.Y.2d 393 (1972)), if the standard market or resale measure is inadequate to put the seller in as good a position as performance would have done, the seller is entitled to its lost profit.

To qualify as a lost volume seller, the seller must prove three factual elements:

1. Unlimited Supply / Expansion Capacity: The seller possessed the manufacturing capacity or inventory supply to produce or acquire both units;
2. Profitable Second Sale: The second transaction would have been profitable; and
3. Independence of Second Sale: The seller would have made the second sale regardless of the buyer's breach. The second buyer was not a substitute customer produced by the breach, but an independent customer who walked through the door.

Formula: $\text{Damages} = \text{Lost Net Profit (including reasonable overhead)} + \text{Incidental Damages}$. (Note: The statutory credit for "proceeds of resale" applies solely to scrap or salvage components, not to the retail resale of the finished product).

4. Action for the Price (UCC § 2-709)

An Action for the Price is the seller's statutory equivalent of specific performance—forcing the buyer to pay the full agreed contract price. Under UCC § 2-709, an action for the price is strictly limited to three exclusive situations:

1. The buyer has accepted the goods (under UCC § 2-606);
2. Conforming goods are lost, damaged, or destroyed within a commercially reasonable time after risk of loss has passed to the buyer; or
3. The goods were identified to the contract and the seller is unable after reasonable effort to resell them at a reasonable price, or the circumstances reasonably indicate that such effort will be unavailing (e.g., custom-manufactured specialty goods with zero secondary market).

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III. UCC Remedies Comparative Matrix