Tongish v. Thomas
251 Kan. 728, 840 P.2d 471 (1992)
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Rule of Law:
When a seller breaches a contract for the sale of goods by non-delivery, the proper measure of the buyer's damages under the Uniform Commercial Code (UCC) is the difference between the market price at the time of the breach and the contract price, pursuant to UCC § 2-713, even if this amount exceeds the buyer's actual lost profits under the general remedy principles of UCC § 1-106.
Facts:
- On April 28, 1988, Denis Tongish, a farmer, contracted to grow and sell 116.8 acres of sunflower seeds to the Decatur Coop Association (Coop) at a fixed price of $13 per hundredweight for large seeds.
- Coop had a corresponding contract to sell the seeds purchased from Tongish to Bambino Bean & Seed, Inc. for the same price it paid Tongish, with Coop's only anticipated profit being a 55 cent per hundredweight handling fee.
- Due to a short crop and other factors, the market price for sunflower seeds rose to approximately double the contract price by January 1989.
- On January 13, 1989, Tongish notified Coop that he would not deliver any more sunflower seeds as required by the contract.
- In May 1989, Tongish sold the 82,820 pounds of sunflower seeds he had refused to deliver to Coop to another buyer, Danny Thomas, for approximately $20 per hundredweight.
Procedural Posture:
- Denis Tongish sued Danny Thomas in district court to collect the balance due from their sale of sunflower seeds.
- Decatur Coop Association (Coop) intervened in the lawsuit, filing a claim against Tongish for breach of their separate contract.
- Following a bench trial, the district court found that Tongish had breached his contract with Coop but awarded damages of only $455.51, representing Coop's actual lost profit on handling charges.
- Coop, as the appellant, appealed the district court's damage award to the Kansas Court of Appeals.
- The Court of Appeals reversed the district court's judgment and remanded, holding that the proper measure of damages was the difference between the market price and contract price under K.S.A. 84-2-713.
- Tongish, as the petitioner, sought and was granted a petition for review by the Kansas Supreme Court.
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Issue:
Does the specific remedy for a seller's non-delivery in UCC § 2-713, which calculates damages as the difference between market price and contract price, control over the general remedy principle of UCC § 1-106, which aims only to put the aggrieved party in as good a position as if the contract had been performed?
Opinions:
Majority - McFarland, J.
Yes. The specific remedy for a seller's non-delivery under UCC § 2-713 controls over the general remedy principle of UCC § 1-106. The court reasoned that when a general statute and a specific statute conflict, the specific statute governs. K.S.A. 84-2-713 specifically addresses damages for a seller's non-delivery, while K.S.A. 84-1-106 provides a general principle for all UCC remedies. The court found it was impractical to harmonize the two statutes in this situation and therefore the specific provision must prevail. Furthermore, the court adopted the policy argument that applying the market price/contract price differential discourages the breach of contracts and promotes market stability. Awarding only lost profits would incentivize sellers like Tongish to breach contracts whenever the market price rises significantly, as they could profitably sell to a new buyer and only be liable for the original buyer's minimal lost profit, effectively treating the contract as a 'floor' price with no risk.
Analysis:
This decision solidifies the primacy of the specific market-based damage formula in UCC § 2-713 over the general 'make-whole' principle of § 1-106 in cases of a seller's repudiation. It establishes that the buyer's choice not to cover, or its ability to hedge against loss through a resale contract, does not limit its right to recover market damages. The ruling signals that courts will prioritize predictable rules that discourage strategic, bad-faith breaches and promote market efficiency, even if it results in a 'windfall' for the non-breaching party. This precedent makes it riskier for sellers to breach contracts simply because a more profitable opportunity arises, as their liability is tied to the market rather than the buyer's individual circumstances.
