Thursday, September 25, 2014

Can a Seller Collect More than Expectation Damages? Yes, Says the Oregon Supreme Court

Law students learn early in their study of Contracts that an aggrieved party is entitled to collect its expectation interest.  But, is that always true?  Well, the Supreme Court of Oregon recently held that an aggrieved seller under Article 2 might be able to claim more than its expectation interest.
The breadth of the remedies available to a seller who has resold goods after a buyer’s breach was at issue in the case of Peace River Seed Co-Operative, Limited v. Proseeds Marketing, Incorporated.  Proseeds Marketing (“Proseeds”) was to purchase seeds from Peace River Seed Co-Operative (“Peace River”) at a fixed price over a period of two years.  During the contract period, the price of grass seeds fell dramatically and Proseeds refused to provide shipping and delivery confirmation to Peace River for the shipment of the seeds.  Therefore, Peace River cancelled the contracts and brought suit, claiming market price damages even though it had resold some of the seed.

Ultimately at issue was whether an aggrieved seller who resold goods (section 2-706) can recover the difference between the unpaid contract price and the market price, even where the market price damages would exceed resale damages actually suffered by the seller.   If Peace River could collect market price damages even where it resold the goods at a profit, it would arguably receive a windfall on the transaction.  Conversely, the court could restrict Peace River to recovery of an amount of damages no greater than it recovered in its resale.   Somewhat surprisingly, the Supreme Court of Oregon held that owing to the lack of clarity in the Code itself, “the text, context, and legislative history of the sellers’ remedies provisions support a seller’s right to recover either market price damages or resale price damages, even if market price damages lead to a larger recovery.”    The court reasoned that the index of remedies provided by section 2-703, coupled with the comments rejecting election of remedies, indicated that a seller could resell at a higher price and still collect a larger market-based remedy where available. 
Despite the decision in Peace River, a seller who attempts to claim the higher remedy under 2-708 after resale should expect a challenge from the buyer.  While the decision in Peace River is based on the Code’s rejection of an election of remedies and the “liberal” administration of remedies,  it does not necessarily follow that an aggrieved seller should be able to collect more than its expectation interest.   In such a case, it seems the seller should not have been able to obtain more than the benefit of the bargain.   One must also question whether the Court might have concluded that the resale price and market were equivalent.  But this may not be the case in a rapidly changing market.  Moreover, while the Code rejects election of remedies, it also provides that “[w]hether the pursuit of one remedy bars another depends entirely on the facts of the individual case.”   It might be argued that the pursuit of the market-based remedy when it exceeds the benefit-of-the-bargain, would entirely be the appropriate circumstance in which to bar the election of the higher remedy.

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