## Facts

- Davis agreed in writing to buy a 0.35 tesla MRI from Diasonics for $1,500,000, paid a $300,000 deposit, and had additional contractual options and related arrangements (including a research grant and an upgrade option).
- After Davis’s physician partners withdrew from Davis’s separate venture, Davis refused to take delivery and did not pay the balance, repudiating the contract.
- Diasonics resold the MRI to a third party for the same price as the Davis contract.
- Davis sought restitution of its $300,000 deposit under U.C.C. § 2-718(2), less the statutory amount the seller may retain.
- Diasonics accepted that restitution was available but claimed a setoff for its breach damages, asserting it was a “lost volume seller” entitled to lost profits under U.C.C. § 2-708(2).

## Issues

1. Whether a seller that resells the goods at the contract price may nonetheless recover lost profits under U.C.C. § 2-708(2) by proving it is a lost volume seller.
2. Whether such lost-profit damages may be used as a setoff against the buyer’s deposit restitution claim under U.C.C. § 2-718(2).

## Decision

- The Seventh Circuit reversed the summary judgment for Davis and remanded.
- The court held that U.C.C. § 2-708(2) can apply even when the seller resells at the same price, if the seller proves lost-volume status.
- The court required a factual determination on remand whether Diasonics had capacity to make both sales and whether both sales would have been profitable (and thus the resale was not merely a substitute sale).
- The court directed the district court to recalculate damages and the net restitution/setoff once any § 2-708(2) lost-profit recovery was determined.

## Legal Principles

- U.C.C. remedies aim to place the aggrieved party in as good a position as full performance would have done.
- U.C.C. § 2-706 (resale damages) may be inadequate where resale does not replace the breached sale; resale at the same price does not automatically eliminate expectation damages.
- Under U.C.C. § 2-708(2), when ordinary measures are inadequate, the seller may recover the profit (including reasonable overhead) it would have made from full performance, plus incidental damages, less costs avoided and payments received.
- A seller qualifies as a lost volume seller only if it proves (1) capacity to supply both the breaching buyer and the resale buyer and (2) profitability of both sales, such that the breach caused the loss of one unit of sales volume.
- A buyer’s restitution claim for a deposit under U.C.C. § 2-718(2) is subject to setoff for the seller’s recoverable damages, including lost profits proven under § 2-708(2).

## Conclusion

The court held that a seller who resells goods after a buyer’s repudiation may still recover lost profits under U.C.C. § 2-708(2) by proving it would have made both the original and resale transactions, and those damages may offset the buyer’s claim to recover its deposit under § 2-718(2).


R.E. Davis Chem. Corp. v. Diasonics, Inc., 826 F.2d 678 (7th Cir. 1987)