Facts
- Industrial Molded Plastic Products, Inc. (Industrial) manufactured custom injection-molded plastic items and also produced “fill-in” items during slow periods, including plastic clothing clips.
- J. Gross & Son, Inc. (Gross) was a wholesaler supplying the retail clothing trade; it sold some clips but kept only a small clip inventory.
- Gross’s president, Stanley Waxman, and his son Peter Waxman (a 22-year-old salesman) met with Industrial’s president, Judson Ulansey, to discuss having Gross market Industrial’s clips more broadly.
- Stanley privately authorized Peter to buy only a limited “trial” quantity, but Gross did not communicate any limitation on Peter’s authority to Industrial.
- After the initial meeting, Peter handled the dealings with Industrial and represented himself as having corporate authority (including holding himself out as a vice president).
- On December 10, 1970, Peter signed a written agreement obligating Gross to purchase five million plastic clothing clips during calendar year 1971 at $7.50 per thousand, with pickup at Industrial’s plant; the arrangement was described as giving Gross an exclusive distributorship for the clips, except for Industrial’s existing “house accounts.”
- Gross picked up one delivery of about 772,000 clips. Peter then had difficulty selling the clips and, rather than report the problem internally, Gross stopped picking up additional clips and did not pay for the balance as the goods remained at Industrial.
- Industrial sued Gross for breach of contract. After a non-jury trial, the court found Gross liable but awarded Industrial only lost-profit damages, reasoning Industrial had not made a reasonable attempt to resell the remaining clips and therefore was not entitled to recover the full contract price.
- Industrial appealed, seeking damages measured by the unpaid contract price. Gross cross-appealed, arguing it was not bound because Peter lacked authority to contract for five million clips.
Issues
- Whether Gross was bound by the clip contract signed by Peter Waxman, despite alleged limits on his actual authority, based on apparent authority principles.
- Whether Industrial could recover the balance of the contract price for the unaccepted clips under U.C.C. § 2-709 (action for the price), or instead was limited to a lost-profits measure of damages.
Decision
- The Superior Court of Pennsylvania affirmed the finding that Gross was bound by the contract because Industrial reasonably relied on Peter Waxman’s apparent authority, and undisclosed internal limits on his authority did not defeat that reliance.
- The court rejected Industrial’s attempt to recover the full unpaid contract price under U.C.C. § 2-709 for the unaccepted clips, because the statutory “price” remedy is limited and was not shown to apply to the remaining goods kept by Industrial.
- The court held that Industrial’s recovery was properly based on the U.C.C.’s general seller-damages provisions (lost profits and related damages), not an award of the full contract price for goods still in the seller’s possession, and it directed that damages be computed under the correct U.C.C. measure rather than treating the case as an automatic “price” action.
Legal Principles
- A principal may be bound by an agent’s acts within the agent’s apparent authority when the principal’s conduct causes a third party reasonably to believe the agent is authorized; private restrictions not communicated to the third party do not bar enforcement.
- U.C.C. § 2-709 (action for the price) is not the default seller remedy for a buyer’s refusal to take delivery; it applies only in specific situations (such as acceptance, post-risk loss, or identified goods that cannot reasonably be resold).
- When the seller retains goods and has not shown that resale is not reasonably possible, the seller generally may not both keep the goods and recover the entire contract price; damages are ordinarily measured under U.C.C. § 2-708 (including lost profits when appropriate), with incidental damages under U.C.C. § 2-710 and credit for any proceeds or value realized from the goods.
Conclusion
The court held Gross liable on the contract because Gross’s conduct allowed its salesman to appear authorized to make the deal, but it refused to award Industrial the full contract price for the unaccepted clips under U.C.C. § 2-709; instead, Industrial’s recovery was limited to the proper U.C.C. seller-damages measure (including lost profits and any allowable incidental damages), rather than an action for the price on goods the seller still possessed.