Locks v. Wade
36 N.J. Super. 128, 114 A.2d 875 (1955)
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Rule of Law:
When a lessor agrees to lease an article of which the supply in the market is practically unlimited, the measure of damages for the lessee's breach is the lessor's lost profit. The lessor is not required to deduct earnings from a subsequent lease of the same article because, absent the breach, the lessor could have entered into both leases and earned two profits.
Facts:
- Jerry Locks agreed to lease an automatic phonograph (a juke box) to Gerald Wade for a term of two years.
- Under the agreement, Wade was to pay Locks a minimum of $20 per week from the machine's proceeds.
- Locks was obligated to supply records and replace any parts that wore out during the lease term.
- Wade repudiated the contract before Locks ever installed the juke box.
- Locks testified that while he had a readily available supply of juke boxes, finding locations to place them was difficult.
- After Wade's breach, Locks rented the component parts of the machine intended for Wade to other customers.
Procedural Posture:
- Jerry Locks sued Gerald Wade in the county district court for breach of contract.
- The trial court entered a judgment for Locks, awarding $836 in damages, calculated as the lost profit over the two-year contract term.
- Wade, as the defendant-appellant, appealed the judgment to the Superior Court of New Jersey, Appellate Division.
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Issue:
Does a lessor's duty to mitigate damages require them to deduct profits received from a subsequent lease of personal property from the damages owed by a breaching lessee, when the lessor has a practically unlimited supply of such property?
Opinions:
Majority - Clapp, S.J.A.D.
No. A lessor with a practically unlimited supply of goods is not required to deduct profits from a subsequent lease to mitigate damages caused by a prior breach. The court distinguished the lease of a non-unique item, like a juke box, from the lease of unique property, like real estate. In the case of unique property, a lessor can only have one lease for a specific period and must therefore mitigate by re-letting and crediting the new rent. However, where the supply of goods is not limited, the lessor could have fulfilled both the original contract and a subsequent contract by acquiring another item. To force the lessor to deduct the proceeds of the second contract would deprive the lessor of the benefit of one of their bargains. Therefore, the proper measure of damages is the contract price less the cost of performance, which amounts to the lost profit on the breached contract.
Analysis:
This decision formally establishes the 'lost volume seller' principle for lessors of goods in New Jersey. It creates a crucial distinction in contract damages between breaches involving unique assets (like real estate) and those involving readily available inventory. By allowing a 'lost volume' lessor to recover full lost profits without mitigating, the court protects the economic reality of businesses that have the capacity to make multiple, simultaneous sales. This precedent ensures that a breaching party cannot benefit from the non-breaching party's ability to secure new business that it would have secured anyway.
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