Contracts II

Cosden Oil & Chemical Co. v. Karl O. Helm Aktiengesellschaft

United States Court of Appeals for the Fifth Circuit, 1984

Facts:

Defendant purchased a large amount of PS from plaintiff, anticipating the supply to soon decline. Plaintiff shipped a small portion of the PS, which defendant paid for. The prices then began to consistently rise. Plaintiff's plants experienced problems halting its production, however. Its Illinois plant lost its supply of styrene monomer when the Illinois River froze and its barges could not deliver it. Its New Jersey plant received a defective reactor and had to wait on its repair for several weeks.

Plaintiff notified defendant that delivery could delayed and then that it was canceling the orders it had not begun shipment on because they could no longer produce it. It shipped the next month's order, but was unable to meet the deadline the month after that. After defendant insisted delivery by the end of the month, plaintiff cancelled the contract. Plaintiff then sued defendant for not paying for the latest shipment.

Procedural History:

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The jury fixed the per pound market prices for polystyrene under each of the four orders at three different times: when Helm learned of the cancellation, at a commercially reasonable time thereafter, and at the time for delivery.

The district court, viewing the four orders as representing one agreement, determined that Helm was entitled to recover $628,676 in damages representing the difference between the contract price and the market price at a commercially reasonable time after Cosden repudiated its polystyrene delivery obligations and that Cosden was entitled to an offset of $355,950 against those damages for polystyrene delivered, but not paid for, under order 04.

Issue:

When is the fair market value for damages calculated when a seller anticipatorily repudiates a contract for the sale of goods?

Plaintiff's Argument:

Market price should have been measured when defendant learned of the repudiation.

Defendant's Argument:

Market price should have been calculated based on the price on the expected day of delivery.

Rule:

Reasoning:

Texas law has not previously decided what "learned of the breach" means in this case. It is clear that it is the time the buyer learns of the breach if that occurs after the time for performance, but in the rare case where the seller anticipatorily repudiates and the buyer does not cover, UCC § 2-610 authorizes the aggrieved buyer to await performance for a commercially reasonable time before resorting to cover or damages. In this situation, the time before calculating the fair market value therefore must be extended to this time period.

Takeaway Rule/Holding:

Where a seller anticipatorily repudiates a contract for the sale of goods, and the buyer does not cover, fair market value for damages is calculated at the time the buyer learns of the breach plus a commercially reasonable period of time.

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