H-W-H Cattle Company, Inc. v. Schroeder
767 F.2d 437 (1985)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under the Uniform Commercial Code, a buyer's damages for non-delivery under § 2-713 may be limited to its actual lost profits when the buyer is a broker with a fixed-price resale contract, as awarding the full market price-contract price difference would constitute a windfall contrary to the Code's general remedial principle in § 1-106.
Facts:
- HW-H Cattle Co. (HWH) was an order-buying cattle company that purchased cattle on commission for its customers.
- HWH had a contract to sell 2,000 steers to its customer, Western Trio Cattle Co. (Western Trio), for $67.35 per hundredweight.
- To fulfill this order, HWH entered into a contract on September 13, 1978, to purchase 2,000 steers from Clayton Schroeder for $67.00 per hundredweight, with delivery scheduled between March 1 and May 31, 1979.
- HWH made a $50,000 downpayment to Schroeder, using funds it received as a downpayment from Western Trio.
- Schroeder only delivered 1,397 of the 2,000 steers, resulting in a shortfall of 603 head.
- HWH and its customer, Western Trio, were both owned and managed by the same entity, the Hitch family.
- Western Trio never made a demand on HWH to fulfill the contract for the 603 missing cattle, nor did it sue HWH for the non-delivery.
Procedural Posture:
- HWH Cattle Co. sued Clayton Schroeder for breach of contract in the U.S. District Court for the Northern District of Iowa.
- Following a bench trial, the district court found that Schroeder had breached the contract.
- The district court awarded HWH damages limited to its unreturned downpayment ($15,075) and its lost commission ($1,371.83).
- HWH, as appellant, appealed the district court's damage calculation to the U.S. Court of Appeals for the Eighth Circuit, arguing it was entitled to greater damages based on the market price. Schroeder is the appellee.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Under the Uniform Commercial Code, may a buyer-broker's damages for a seller's non-delivery be limited to its lost profits on a pre-existing resale contract, rather than the full market price minus contract price difference prescribed by § 2-713, to avoid granting the buyer a windfall?
Opinions:
Majority - Heaney, J.
Yes. A buyer-broker's damages may be limited to its actual lost profits to avoid a windfall. The court held that while UCC § 2-713 provides for damages based on the difference between market price and contract price, this remedy is subject to the general principle of UCC § 1-106, which states that remedies should place the aggrieved party in as good a position as if performance had occurred, but no better. HWH was an order-buyer, meaning its business was to purchase cattle only to fill a specific customer's order. Its expected gain on this transaction was limited to its fixed commission of $0.35 per hundredweight. Awarding damages based on the higher market price would grant HWH a significant windfall it never expected. The court distinguished this from cases where a buyer might be exposed to market risks, noting that HWH was insulated by its back-to-back contract. Furthermore, the court considered it an equitable factor that HWH's resale customer, Western Trio, was a related company that never demanded the cattle or sued HWH for damages, indicating HWH suffered no actual liability for market-price damages to its own customer.
Analysis:
This decision is significant for establishing that the UCC's general remedial policy of avoiding windfalls (§ 1-106) can override the specific damage formula provided in § 2-713. It creates a 'broker exception,' limiting buyers who are mere middlemen with fixed-price resale contracts to recovering only their lost profits. This approach prevents such buyers from speculating at the seller's expense after a breach. The ruling introduces an element of uncertainty, as courts must now analyze the substance of a transaction and the buyer's actual market position, rather than mechanically applying the market price formula, which may lead to more litigation over what constitutes a 'windfall' in different commercial contexts.
