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Missouri Furnace Co. v. Cochran

Federal Court
8 F. 463 (1881) (1881)
ELI5:

Rule of Law:

In a breach of an installment contract for the sale of goods, the measure of damages is the sum of the differences between the contract price and the market price of the goods on each date that delivery was due, not the difference between the contract price and the price of a substitute forward contract entered into upon the seller's repudiation.


Facts:

  • Plaintiff and John M. Cochran entered into a contract for Cochran to sell and deliver 36,621 tons of standard Connellsville coke during the year 1880.
  • The contract price was $1.20 per ton, deliverable in daily installments of nine cars each on every working day.
  • After delivering 8,765 tons, Cochran notified the plaintiff on February 13, 1880, that he was rescinding the contract and would cease all future deliveries.
  • On February 27, 1880, after Cochran's repudiation, the plaintiff entered into a new, similar contract with a third party, Hutchinson, for the remaining coke for the rest of the year.
  • The price of the Hutchinson contract was $4.00 per ton, which reflected the market rate for a forward contract at that time, during an unusually high and excited market.
  • The coke market price subsequently declined sharply around May 1, 1880, falling to $1.30 per ton by the middle of that month.

Procedural Posture:

  • The plaintiff sued John M. Cochran in the U.S. Circuit Court for the Western District of Pennsylvania for breach of contract on February 26, 1880.
  • At trial, the court instructed the jury that damages should be calculated as the sum of the differences between the contract price and the market price at the several dates when deliveries should have been made.
  • The jury returned a verdict for the plaintiff for $22,171.49.
  • The plaintiff, dissatisfied with the amount of the award, moved the court for a new trial, arguing that the jury instruction on the measure of damages was erroneous.
  • The case is before the court on the plaintiff's motion for a new trial.

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Issue:

For a seller's breach of an installment contract for the sale of goods, are damages measured by the difference between the contract price and the price of a substitute forward contract entered into by the buyer upon notice of repudiation?


Opinions:

Majority - Acheson, J.

No. The proper measure of damages for a seller's breach of an installment contract is not the cost of a new forward contract, but the sum of the differences between the contract price and the market price at the time each delivery should have been made. The general rule, established in cases like Shepherd v. Hampton, is that damages are measured by the market value at the time performance was due. For installment contracts, this principle is applied to each missed delivery, as affirmed in English cases like Brown v. Muller and Roper v. Johnson. A buyer, upon receiving a notice of repudiation, is not obligated to enter into a new, speculative forward contract; they may wait for each performance date to pass. By entering into the Hutchinson contract during a period of unprecedented and temporary high prices, the plaintiff did so at its own risk. The defendant cannot be held liable for damages based on this speculative decision, especially when no special damages were shown. The correct, compensatory measure is to calculate the loss at each scheduled delivery date based on the market price at that time.



Analysis:

This case solidifies the traditional common law rule for calculating damages in cases of anticipatory repudiation of an installment contract. It establishes that damages are measured at the time of performance for each installment, not at the time of repudiation. This approach contrasts sharply with the modern 'cover' remedy found in the Uniform Commercial Code (U.C.C. § 2-712), which allows a buyer to make a reasonable substitute purchase and recover the difference. The decision places the risk of market fluctuations between the time of repudiation and the time of performance on the non-breaching party, discouraging them from locking in damages through a potentially speculative forward contract in a volatile market.

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