Chicago Roller Skate Manufacturing Co. v. Sokol Manufacturing Co.
7 U.C.C. Rep. Serv. (West) 804, 185 Neb. 515, 177 N.W.2d 25 (1970)
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Rule of Law:
Under UCC § 2-708(2), where a buyer wrongfully rejects goods for which there is no market, the seller's measure of damages is the profit lost on the sale, plus any incidental damages and costs reasonably incurred, including costs from a good-faith effort to salvage the goods.
Facts:
- Defendant purchased truck and wheel assemblies from Plaintiff for use in manufacturing skate boards.
- After the "skate board fad terminated," Defendant returned a quantity of the merchandise several weeks later without Plaintiff's consent.
- The total amount due from Defendant for the merchandise was $12,860.
- The returned goods were not suitable for other uses and could not be resold in their current state.
- Plaintiff held the goods for seven months.
- Plaintiff then disassembled, cleaned, and rebuilt the units to make them suitable for use on roller skates, incurring an expense of $3,540.76.
- Plaintiff's lost profit on the original contract was $2,572.
- Plaintiff credited Defendant with the reasonable value of the salvaged parts (70 cents per unit) and sought the remaining balance.
Procedural Posture:
- Plaintiff brought an action for damages for breach of contract against Defendant in the district court.
- The parties waived a jury, and a trial was held to the court.
- The trial court entered a judgment in favor of the Plaintiff for $4,285.
- Defendant, the appellant, appealed the judgment to this court; Plaintiff is the appellee.
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Issue:
Does a seller's good faith effort to mitigate damages by salvaging and repurposing wrongfully rejected goods, rather than holding them for the buyer or reselling them, preclude recovery of damages under the Uniform Commercial Code (UCC)?
Opinions:
Majority - Newton, J.
No. A seller's good faith effort to mitigate damages by salvaging wrongfully rejected goods does not preclude recovery; instead, the seller is entitled to damages under UCC § 2-708(2). The court reasoned that while the plaintiff could have held the goods and sued for the full contract price under UCC § 2-709, its decision to salvage the goods was a good-faith effort to mitigate damages, which is consistent with the principles of the UCC (§ 1-203) and general contract law. The court agreed with the defendant that the controlling measure of damages was not the contract price minus salvage value, but rather UCC § 2-708(2). This section allows for recovery of lost profits ($2,572) plus costs reasonably incurred, which included the salvage costs ($3,540.76), for a total of $6,112.76. Because the trial court's award of $4,285 was less than what the plaintiff was entitled to under the correct legal theory, the error was without prejudice to the defendant, and the judgment was affirmed.
Analysis:
This decision highlights the UCC's emphasis on good faith, mitigation of damages, and the liberal administration of remedies to place the aggrieved party in the position of full performance. It establishes that a seller's reasonable, good-faith salvage efforts, even if not a formal 'resale' under the code, can be accounted for as 'costs reasonably incurred' under the lost profits damage formula of § 2-708(2). The case demonstrates that a court may uphold a judgment awarded on an incorrect legal theory if the amount is less than what the party would have recovered under the correct theory, deeming the error harmless. This provides flexibility for sellers dealing with rejected goods that lack a ready market.
