Imagine that you and a perspective homeowner have entered a contract. You agree to sell and the perspective homeowner agrees to buy your home for $500,000. The buyer breaches, but with no trouble you quickly reach an identical agreement with another purchaser for $500,000. You are in exactly the same position you expected to be in, despite the first buyer's breach. If you intuitively think you wouldn't be able to get much in the way of damages if you sued the first buyer for breach in contract, you'd be correct. Today though, we're going to discuss a special concept in contract law which would allow recovery in a somewhat similar scenario where there is a lost volume seller. We will examine this concept by looking at a case called, Locks v Wade. It was decided by a New Jersey Superior Court in 1955. After that, we will discuss important provisions of the uniform commercial code that deal with damages in the case of buyer breach, including damages for lost volume sellers. And in part two of this video, we'll consider some hypothetical scenarios to which we'll try to apply, even coming up with numbers as answers for damages under these provisions. Jerry Locks was in the business of leasing music equipment. He contracted to lease a jukebox to the defendant Gerald Wade for two years. Lock would provide records and replace the worn out parts on the jukebox. He and Wade would split the profits and with Wade paying Lock a minimum of $20 per week. Wade, the lessee repudiated the agreement before the jukebox was installed and Lock's leased the equipment to others. But he sued Wade for breach of contract and recovered $836 an amount representing the $20 per week for the two years that he would have received if the contract had been performed. Minus the cost Locks would have had to put in the jukebox and to maintain it. Wade appealed. He argued at because the plaintiff was able to lease the equipment elsewhere, he hadn't really lost those two years of profits. To the extent he owed anything, Wade argued, he only owed the amount that remained after the amount he'd gained from the leases were taken into account. Considering out home sale example again, suppose a court awarded you the full purchase price for the first buyer's breach even though you'd completed the sale with a different buyer. Wade argued this was essentially what happened in this case. The court disagreed. It explained that Locks had many jukeboxes to sell or rent. Where in our earlier hypothetical, you only had one house you could sell. Locks had many jukeboxes. Moreover, Locks had argued that, quote, locations were very hard to get. There weren't many people seeking to lease the equipment. Because of this ample supply and limited demand, if Wade had kept his promise and leased the jukebox equipment, Locks still would have been able to lease additional jukebox equipment to the same people that wanted the equipment after Wade breached. He would have realized the profits from both agreements, thus the court concluded, quote, where, as here, a plaintiff lessor agrees to lease an article of which the supply in the market is for practical purposes not limited. Then the law would be depriving him of the benefit of his bargain if, on the breach of the agreement, it required his claim against the lessee to be reduced by the amount he actually did or reasonably could realize on a reletting of the article. If the first lease were breaches, quote, he should have the benefit of both bargains, unquote. Does it matter not just that the supply of jukebox equipment is high, but the number of people looking to lease the equipment is low? Would the same result obtained if that demand had outpaced the available equipment? Yes, it matters. The short side of the market controls the amount of a good that is sold. When there are more people wanting to buy widgets than there are widgets to be sold, the short supply will determine the amount sold. Conversely, if there are fewer people looking to buy a car than cars to be sold, then the short demand side of the market will determine the amount sold. Undergraduate economics is about finding the equilibrium price where supply equals demand. But in disequilibrium, it's the short side of the market that determines how much will be sold. If there are fewer prospective lessees of jukeboxes than there are jukeboxes to be leased, those prospective lessees determine the quantity of jukebox sold. This is the circumstance the court found, that supply was greater than demand. So that Wade's breach impacted the volume that Lock was ultimately able to sell. And so Lock was entitled to lost volume damages. By contrast, if the number of people seeking jukeboxes was greater than the number available for leasing, the same number of jukeboxes, all of them, would be leased regardless of Wade's breach. There would be no lost volume and so Lock would not be entitled to damages. Another way of thinking about this is to ask whether Wade's breach was a but-for cause of Lock's renting the jukebox equipment to a subsequent lessees. Lost-volume damages should only be awarded if the breach was not a but-for cause of the lease or sale of a good to another lessee or buyer. We can also formulate the test differently but equivalently asking whether the breach was a but-for cause of the change in the lessor's volume. Lost-volume damages should only be awarded if the breach is but-for cause of a change in the seller's volume. Importantly it is the breaching lessees burdened to prove that there was no lost volume in these cases. Section 2-708 of the UCC is the provision of the code that deals with the seller's damages in the case of a buyer's non-acceptance or repudiation of a contract. What happened in this case? 2-708(1), provides the standard UCC measure of damages. Quote, the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price, together with any incidental damages, but less expenses saved in consequence of the buyer's breech. In other words, if the market price of the goods at the specified performance time and place is less than the amount specified in the contract, the seller can recover the difference. But if the market price is the same, 2-708(1) wouldn't provide damages for the seller. This is where 2-708 subparagraph two comes in. This provision states, quote, if the measure of damages provided in subsection one is inadequate to put the seller in as good a position as performance would have done, then the measure of damages is the profit which the seller would have made from full performance by the buyer, together with any incidental damages. Due allowance for costs reasonably incurred and due credit for payments or proceeds of resale. Sellers in Lock's position, who for practical purposes have unlimited quantities of their goods and who resell goods after a party's repudiation for the same price as they'd offered those goods to the repudiating party can claim their damages. Which under subparagraph one are going to be basically zero, they can claim that those damages are inadequate to put them back in the position they would have been in had the repudiation not occurred. So we're now going in the next video, part two of this module, we're going to go ahead and see how section 2708 applies in other circumstances.
