Panhandle Agri-Service, Inc. v. Becker
644 P.2d 413, 231 Kan. 291, 33 U.C.C. Rep. Serv. (West) 1320 (1982)
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Rule of Law:
Under the Uniform Commercial Code, the standard measure of damages for a seller's non-delivery of goods is the difference between the market price at the time of the breach and the contract price. A buyer may only recover consequential damages, such as lost profits, if they prove the loss could not have been reasonably prevented by cover (procuring substitute goods).
Facts:
- Panhandle Agri-Service, Inc., a Texas corporation, contracted to buy 10,000 tons of alfalfa from Norman Becker, a Kansas farmer, for $45 per ton during the 1978 season.
- Becker had a crop shortage in 1978 and could not fulfill the entire contract.
- The parties mutually agreed to extend the contract, allowing Becker to deliver the remaining balance of approximately 912 tons from his 1979 crop.
- In 1979, Panhandle experienced financial difficulties and had to sell its truck fleet.
- Aware of Panhandle's financial issues, Becker stipulated that the hay must be paid for before it was loaded, to which Panhandle agreed.
- Panhandle arranged for a third-party trucker, Gale McCoy, to haul the hay, but McCoy backed out after a creditor of Panhandle threatened to attach the trucks.
- During this time, the market price for alfalfa hay in the area rose from the $45 contract price to $62 per ton.
- Panhandle's president contacted Becker, who then stated he would not deliver any more hay, giving no reason.
Procedural Posture:
- Panhandle Agri-Service, Inc. sued Norman Becker in a Kansas district court (trial court) for breach of contract.
- Following a trial without a jury, the court found for Panhandle and awarded damages of $12,698.63, calculated based on lost profits less hauling costs.
- Becker appealed the judgment (appellant), and Panhandle cross-appealed the damage calculation (cross-appellant) to the Kansas Court of Appeals.
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Issue:
Does the Uniform Commercial Code, specifically K.S.A. 84-2-713, dictate that the standard measure of damages for a seller's non-delivery of goods is the difference between the market price at the time of the breach and the contract price, rather than the buyer's consequential damages such as lost profits, when the buyer has not shown that cover was unavailable?
Opinions:
Majority - Fromme, J.
Yes. The proper measure of damages for a seller's non-delivery of goods is the difference between the market price at the time the buyer learned of the breach and the contract price. The court reasoned that K.S.A. 84-2-713 explicitly provides this as the standard remedy. The trial court erred by awarding damages based on lost profits, which are considered consequential damages under K.S.A. 84-2-715(2)(a). Such damages are only recoverable if the buyer can demonstrate that the loss could not have been reasonably prevented by 'cover' (procuring substitute goods) or otherwise. While cover is not a mandatory remedy, a buyer's failure to attempt it when reasonably available precludes the recovery of consequential damages. Since Panhandle presented no evidence that it attempted to cover and found it unavailable, it is limited to the standard measure of damages. The court calculated this as the market price ($62/ton) minus the contract price ($45/ton), resulting in $17/ton in damages for the undelivered hay.
Analysis:
This decision reinforces the Uniform Commercial Code's default remedy for a seller's breach and clarifies the relationship between the buyer's options. It establishes that while a buyer is not required to 'cover,' the failure to do so has significant consequences, effectively barring a claim for lost profits. The ruling provides a clear precedent that places a practical duty on aggrieved buyers to attempt to mitigate their losses by seeking substitute goods if they intend to claim consequential damages. This incentivizes market-based solutions and limits recovery to objectively calculable market damages unless a higher burden of proof regarding the unavailability of cover is met.
