Facts
- Fuji, a wholesaler of digital memory cards, sold goods to Zalmen, a wholesale distributor and long-time customer.
- In November 2007, Zalmen ordered 10,000 one-gigabyte xD Picture Memory Cards at $19.49 per unit (total $194,900).
- Zalmen sold about 4,000 cards, then claimed it could not profitably sell the remaining 6,000 because a competitor allegedly sold at a lower wholesale price.
- Zalmen demanded “price protection” credits based on an asserted industry practice.
- On or about December 2, 2008, Zalmen returned the remaining 6,000 cards to Fuji without obtaining the return authorization required by Fuji’s General Terms and Conditions of Sale.
- Fuji initially rejected the return and directed the carrier to return the goods to Zalmen; Zalmen refused delivery, leading to repeated transfers and storage issues.
- Fuji ultimately took possession, credited Zalmen at $4.50 per card, and later resold the goods to a third-party reseller at a discount without notifying Zalmen in advance of the intended resale.
- Fuji sued to recover additional damages measured by the difference between the contract price and the discounted credit/resale amounts.
Issues
- Whether Zalmen could avoid the contract price by returning conforming goods based on an alleged trade custom of “price protection,” notwithstanding contractual return-authorization requirements.
- Whether Fuji’s private resale remedy required reasonable notice to Zalmen of Fuji’s intention to resell under UCC § 2-706.
- Whether, and to what extent, Fuji could recover contract damages after taking the goods back, issuing a credit, and reselling without the notice required for a private resale.
Decision
- The court found Zalmen had no contractual or UCC right to return the cards merely because resale became unprofitable; the return was unauthorized under the parties’ terms.
- The court treated Fuji’s acceptance of possession and subsequent discounted private resale as invoking UCC § 2-706 resale principles.
- Because Fuji did not provide Zalmen reasonable notification of its intention to conduct a private resale, Fuji’s recovery of the contract-resale differential was limited rather than awarded in full.
Legal Principles
- A buyer’s inability to resell at a profit does not, by itself, create a right to reject, revoke acceptance, or return conforming goods, especially where contract terms require prior return authorization.
- Under UCC § 2-706, a seller seeking damages based on a private resale must resell in a commercially reasonable manner and give the buyer reasonable notification of the intention to resell.
- Failure to comply with § 2-706 notice requirements can bar or restrict recovery calculated as the contract price minus the resale price, even if the buyer’s return constituted a breach.
Conclusion
The court held that the buyer’s unauthorized return breached the parties’ sales terms and was not excused by alleged “price protection” custom, but the seller’s failure to give reasonable notice before a private resale constrained the seller’s ability to recover full resale-based contract damages under UCC § 2-706.