AMERICAN CONTRACT LAW FOR

LLM STUDENTS
Fall 2022: Prof Stephen Ross

Class #24: Seller’s Remedies and Duty to Mitigate

Review 21(B): Mistake in Performance/ Forfeiture
• Distinguish insurance contracts, where forfeitures are particularly
suspect and likely not to be enforced:
• Contracts of adhesion
• Forfeiture remedy is disproportionate
• Forfeiture not necessary to protect insurer’s legitimate claims
• Rest § 229 excuses performance of a condition where:
• Result is ‘disproportionate’
• Performance was not a “material part of the agreed-upon exchange”
• Reasoning similar to unconscionability: a party who agrees to a
disproportionate remedy that was not an actual part of the deal is likely to be
the victim of oppression or surprise
Review 22-23: Buyers’ remedies
• Fundamental purpose of modern common law and UCC is to put aggrieved party in “as good a position as if the other party
had fully performed”
• Key elements of damages
• Expectation damages: difference between promised price and actual market price at time of breach
• Incidental damages reasonably incurred to avoid losses
• Consequential damages (see class 25)
• Buyer’s options after breach
• Accept non-conforming goods and receive damages = value of goods as accepted and promised goods
• Cover and receive damages = difference between cover price and contract price
• Don’t cover and receive damages = difference between contract price and market price when buyer learned of breach
• Cover doctrine furthers American contract law endorsement of efficient breach
• Courts grant reasonable leeway to cover based on circumstances of case
• When cover or restoration exceeds value of property
• Buyer only receives value of product at issue where operating for profit, and would not actually restore property for non-economic reasons
• Where court finds buyer is motivated by subjective reasons to restore full promise, will award damages equal to cost of restoration (contra
Peevyhouse majority)
• UCC puts burden on seller to exclude cost of restoration from warranty if it wants to limit liability
Conclusion re Buyers’ remedies: error costs
and experiential propositions
• Always requiring cost of repair could give injured party a windfall and punish
an efficient breach
• Awarding only diminished value of property risks undercompensating plaintiff
for subjective value placed on improvement (most homeowners do not pay for
landscaping simply to improve property value on resale)
• Strong default rule that limits landowner damages to diminution of market
value encourages operators to over-promise services and under-perform
• Strong default rule of liability based on performance cost would force
operators to consider risks and negotiate specific details
• These considerations left unresolved by broad phrases like “unreasonable
economic waste”(Rest §348) or
Basic concepts in sellers’ remedies
• Seller’s expectation is to achieve an expected profit from the sale of
goods or services
• Bargain Principle facilitated by awarding sellers contract price minus
saved expenses plus incidental costs
• Administrability: law does not recognize trivial savings (paper, electricity, etc.)
• Law does not recognize savings in labor or plant when can’t really downsize
after breach (236+]
• Proof issues (Rest § 335 [237]): note civil discovery in the US
UCC Sellers Remedies
• UCC § 2-703 gives sellers various options in response to buyer’s breach, in
terms of remedies
• resell and recover damages per § 2-706 -> only an option..
• recover damages for non-acceptance per § 2-708
• action on the price per § 2-709
• Resell in mitigation under § 2-706
• mirror to buyer’s ability to cover
• resell in good faith and commercially reasonable manner (GF/CRM) and recover
difference between resale and contract price
• sub §§ (2-4) define GF/CRM
• actual market price not relevant to recovery, unless claim that resale price not
GF/CRM (cmt. 3)
UCC seller remedies/2
• § 2-708(1) effectuates basic concept of expectation damages applied to
modern sellers’ remedies: (market price at time of tender – unpaid
contract price) + incidental damages – expenses saved
• § 2-708(2) effectuates basic concept of bargain principle: available when
needed to “put the seller in as good a position as performance would
have done”
• Profit from performance + incidental damages – proceeds for resale
• If seller CHOOSES to cover, then can only recover under § 2-706
• § 2-709 (action on the price) concerns goods that cannot be resold
(accepted, lost, damaged after risk of loss passes to buyer): seller can
recover contract price....
Is resale mitigation?
• Darla Dealer sells antique cars (p.235) -> loss volume seller.
• Last year, sold antique BMW to Wilhelm Hohenzollern; antique Citroen to Louis
Bourbon; antique Jaguar to Edward Windsor
• Also contracted to sell an antique Volvo to Carl Gustaf for $90,000; CG breaches
contract, DD sells car instead to Olaf Haakonson for $85,000? 5.000, to make DD a
whole.
• How much is Carl Gustaf liable to pay for breaching the contract?
• Darla Dealer also sells new cars -> harga jual-harga dealer...
• Contracted to Carl Varmland to buy new Volvo Polestar sports car for $150K; orders
the car from Volvo’s plant in South Carolina, then CV breaches
• DD then sells the Polestar to Haakon Glucksburg for $145K
• How much is Carl Varmland liable to pay for breaching the contract?
UCC’s effect in changing the law: Neri [240]
• Boat ordered by Retail Marine for Neri was, after repudiation and breach, resold
to another buyer at same price
• Under prior NY law, damages limited to difference between contract price and
market price
• The trial court held that the retail dealer was entitled to damages, but these
damages had not been properly determined. Under § 2-708, the correct measure
of damages was the loss of profits and incidental damages. On appeal, the trial
court's decision was affirmed. The case was appealed to the Court of Appeals of
New York.
1. How much could RM recover under old NY law?
2. Why does NY court uphold a recovery of $2,579 for lost profits and $674 for
incidental damages, if RM resold boat to another buyer at the same price?
3. Why does the English court NOT award lost profits to the seller in Lazenby
Garages [245]? since this is a unique secondhand car, the seller had resold the
• The Court held that under the Uniform Commercial Code, the correct measure of damages was the loss of profits and
incidental damages. Prior law had limited damages to the difference between the contract price and the market price.
Under new provisions of the law, if the measure of damages under the difference in price was inadequate to put the seller
in as good a position as performance would have done, then the seller was entitled to its profit together with any
incidental damages.
• Yes. Under Uniform Commercial Code (UCC) § 2-708(2), if a buyer repudiates a contract with a lost-volume seller, the seller
is entitled to the profit the seller would have made from full performance by the buyer, plus reasonable incidental
damages associated with resale. Section 2-708(2) applies uniquely to lost-volume sellers, as traditional measures of
restitution damages under the UCC would not put a lost-volume seller in as good as a position as it would have been had a
buyer not repudiated its contract with the seller. A lost-volume seller is defined as one who, had there been no breach by
the buyer, could and would have had the benefit of both the original contract and the resale contract. Thus, § 2-708(2) was
enacted as an additional equitable remedy in response to the fact that lost-volume sellers are not completely made whole
simply by reselling the goods from repudiated contracts. In this case, if Neri had not repudiated his contract with Retail,
Retail would have likely received the profits both from its original sale to Neri as well as an additional sale to another
customer. Additionally, Retail would likely not have incurred additional incidental damages due to the extra storage and
maintenance costs associated with the upkeep of the boat ordered for Neri. Retail is thus a lost-volume seller and is
entitled to its lost profits plus reasonable incidental damages associated with resale. The incidental damages include
amounts for commercially reasonable expenses incurred in caring for and keeping the goods after the breach. Therefore,
under UCC § 2-708(2), Neri is entitled to recover its deposit of $4,250 less an offset to Retail amounting to $3,253 ($2,579
in lost profits and $674 in reasonable incidental damages for storage and upkeep costs, finance charges, and insurance).
The decision of the appellate court is modified to reflect this new calculation of damages, and as modified is affirmed.
• Student: Section 2-718(2)(b) of the Uniform Commercial Code.
Student: Well, we know that the Neris agreed to pay $12,587.40 for
• Instructor: But why the U.C.C.? The Neris’ purchase appears to be a
the
• consumer transaction, not a commercial transaction. boat, and that it was sold four months later to somebody else for the
• Student: But it is still a sale of a good. same
• Instructor: Exactly right. Remember that Article 2 of the U.C.C. applies to price.
Instructor: That’s right. Although these two sale prices do not
• consumer transactions for the sale of goods unless specifically displaced by a
necessarily
• consumer protection law.8
mean that the market price was exactly the same, they do provide
• Okay. Now why did the trial judge start with some good
• section 2-718? evidence of the market price. So let’s assume that the market price is
• Student: Because it seems to apply to the situation. $12,587.40, remembering that market price is a fact to be proved at
•
trial. Now
Instructor: Right. Lawyers and judges usually look for the section that
what is the “unpaid contract price”?
• deals most specifically with the factual situation being considered. Let’s look
Student: I think that would be the full contract price, which is the
• at section 2-718(2) carefully. Did the trial judge construe this section $12,587.40, less the amount of the down payment, which is $4,250.
• correctly? It says: “Where the seller justifiably withholds delivery of goods Let’s see.
• because of the buyer’s breach . . . .” Is this our case? That comes out to $8,337.40.
• Student: Yes, because the court ruled for Retail Marine on liability, and
Instructor: So what is the difference between the market price and
the
• Retail Marine never delivered the boat to the Neris
unpaid contract price?
https://scholarship.law.slu.edu/cgi/ Student: That would be $12,587.40 minus $8,337.40, which would
viewcontent.cgi?article=2131&context=lj bring
us back to $4,250, the amount of the down payment.
Buyers’ AND Sellers’ Duty to Mitigate
• In some areas of traditional law, there is no duty to mitigate
• Rest § 350(1): “Damages are not recoverable for loss that the injured party
could have avoided without undue risk, burden, or humiliation”
• What are the moral, policy, or experiential propositions that support this rule?
The rules stated in this Section reflect the policy of encouraging the injured
party to attempt to avoid loss, to make such efforts as he can to avoid loss by
barring him from recovery for loss that he could have avoided if he had done
so.

e.g., landlord has to find new tenant if the old tenant does not pay, fired worker
who fire properly has to find new job or get a job
Shirley Maclaine v 20th Century Fox [246]
• In contracts of employment or for services, the worker is the seller
and the employer is the buyer
• Fox Studios promised SM $750K to star in a movie, she is awarded
entire amount despite Fox offer of another movie for same
compensation
• General rule [248]: worker or service provider can recover the
contract salary, less what the plaintiff “has earned or with reasonable
effort might have earned from other employment”
• Why does the Court reject Fox’ claim that SM had a duty to mitigate?

https://www.youtube.com/watch?v=YE2u-673ZQk
• The offer of the lead in Big Country, Big Men is different from and
inferior to the lead in Bloomer Girl. The female lead as a dramatic
actress in a Western film cannot be considered the equivalent of or
substantially similar to the lead in a musical. Moreover, because
MacLaine had been offered director and screenplay approval under
the Bloomer Girl contract, but not under the Big Country, Big Men
offer, the contract for Big Country, Big Men, was inferior.

• Because the offer was both different and inferior, it was not her
obligation to accept it.
Limits on duty to mitigate
• Hypo: Gina Busch is part of the legendary family that has brewed Budweiser beer for years, and with her
father she runs a successful beer distribution business, while at the same time graduating at the top of her
class from law school and becoming a member of the bar
• She signed a 3 year contract to sell Michelob beer to the 4-star Morton restaurant chain; after 1 year,
Morton’s breaches the contract, but Pizza Hut offers to buy the same quantity of beer at 80% of the
Morton’s contract
1. Does she have a duty to mitigate by selling the beer to Pizza Hunt and collecting 20% of the contract price from
Morton’s, or can she refuse to sell to Pizza Hut and collect 100% of the contract price from Morton’s? the first
option..

commercial -> to make money

• She also signed a 3 year contract of employment at Bryan Cave, St. Louis’ largest and most prestigious law
firm, but before starting they repudiate the offer; during her job search, she also received an offer, at 80% of
the Bryan Cave salary, to work for smaller, less prestigious law firm
2. Does GB have a duty to mitigate by accepting the offer at the smaller firm and recovering 20% of the BC salary
from them, or can she continue to look only at the largest firms in St Louis and meanwhile collect 100% of her
salary from BC? If your answer is different, why? the second option, because superior inferior

personal -> a reason more than money..

Limits/ 2: Bomberger [255]
• Complex facts
• McK promises B $3500 to demolish and remove a building
• McK promises H $4000 to surrender lease to building
• B had separately agreed to build a new store for H elsewhere during post WWII construction
boom where materials were in short supply
• McK then repudiates K w/ B, and instructs B not to demolish building
• B goes ahead and performs the contract, and sues McK for $3500
• General rule that duty to mitigate includes duty to stop performance of a service
upon notice of repudiation, with damages limited to partial performance [255]
1. What are the social propositions that underlie this rule? to avoid the loss on
himself.
2. Why does CA SCt find that B’s claim is an exception to this rule?A contracting
party can continue performing after being instructed to stop, and recover
damages based on the continued performance, if the party is not interested
solely in the profits from the agreement but must perform the work in order to
• Yes. A contracting party can continue performing after being instructed to stop, and recover
damages based on the continued performance, if the party is not interested solely in the profits
from the agreement but must perform the work in order to fulfill other obligations. Here, the
agreement did not provide simply for the payment of money in return for the performance of
plaintiffs’ services. Instead, a critical component of the contract was that plaintiffs were to keep
certain salvaged materials for use in the construction of another building. Moreover, the
materials being collected, namely plate glass and skylights, were in critically short supply. In
fact, there was testimony that it would have taken from 90 to 120 days to obtain new glass and
skylights had plaintiffs not been able to secure the materials from the demolished building.
Thus, the trial court properly concluded that plaintiffs’ inability to salvage the materials from
the demolished building would have seriously interfered with completion of the new building
and that equivalent materials could not readily be obtained by plaintiffs. Finally, in performing
under the terms of the contract, plaintiffs did not commit trespass and are not liable for
damages for destruction of the old building. The judgment of the trial court is affirmed.
When is mitigation commercially reasonable?
• Kellett Aircraft facts [259]:
• K agreed to sell 5000 shower cabinets to A for $66K + $3331 in tooling costs
• K knew that A needed cabinets for a government order in September
• In Sept, K repudiated contract
• A then contracted with C to immediately operate 24/7 to get cabinets ASAP, for $90K
• Several days later, A learns that L will make cabinets for $66K + $500 in tooling costs
• Trial court held that A failed to properly mitigate by contracting with C instead of L
• Since A would not have incurred any damages if A had contracted with L, why
does Hastie J hold that A can recover ($90K-$66,331) from K?
bottom of 259
 Other examples where victim of breach is not
required to mitigate
• Seller operating factory not required to shut-down factory to minimize damage to
breaching buyer (Southern Cotton-Oil [256])
• Landlord of movie theater can, upon lessee’s breach, resume operating theater at a loss
rather than close theater (Fine Arts Pictures [256])
• (By implication): where commercially reasonable not to sell custom-made products that
are inferior in quality where it would damage the seller’s reputation (Madsen [258])
• Investor not required to sell jewelry and valuable data to gain cash wrongfully withheld
by a financial institution (Bank One [260])
• Buyer not required to cover with an alternate supplier when breaching seller could with
equal effort also arrange with alternate supplier to perform contract (S.J. Groves [260])
• KEY: Many contracts involve risks, and victim of breach is “not obligated to exalt the
interests of the defaulter to his own probable detriment” [259]