## Facts

- Teradyne, Inc., a Massachusetts manufacturer of electronic test equipment, entered into a quantity purchase contract binding Teledyne Industries, Inc., a California buyer, governing Teledyne’s purchase of a T-347A transistor test system.
- Teledyne’s purchase order set a list price (and fair market value) of $98,400, subject to a $984 contractual discount.
- Teledyne cancelled the order when the T-347A was packed and scheduled to ship two days later; Teradyne refused to accept the cancellation.
- Teledyne offered to purchase a different $65,000 system (FET system) under the same quantity contract; Teradyne refused.
- Teradyne incurred $614 to dismantle, test, and reassemble the T-347A, then resold it for $98,400 to another customer pursuant to an order that existed before Teledyne’s cancellation.
- Teradyne would have sold to the resale purchaser even if Teledyne had performed; absent breach, Teradyne would have made two sales and two profits.
- Teledyne conceded contract formation, breach, and that U.C.C. § 2-708(2) supplied the measure of damages; the dispute concerned computation.
- A master awarded $74,778 in lost profit plus $614 incidental damages; the district court adopted the report and entered judgment. Teledyne appealed the damages methodology and amount; Teradyne cross-appealed the allocation of the master’s costs.

## Issues

1. Whether a seller that would have made both the original sale and the resale qualifies as a lost-volume seller entitled to lost-profit damages under U.C.C. § 2-708(2) despite resale at the contract price.
2. How to compute “profit (including reasonable overhead)” under U.C.C. § 2-708(2), including which expenses are direct costs that must be deducted rather than treated as overhead.
3. How the “due credit for payments or proceeds of resale” language in U.C.C. § 2-708(2) applies in a lost-volume setting.
4. Whether the district court’s allocation of the master’s fees and costs should stand after correcting the damages calculation.

## Decision

- The court held Teradyne was a lost-volume seller and could recover lost profits under U.C.C. § 2-708(2) notwithstanding a full-price resale.
- The court rejected a literal application of the “due credit for … proceeds of resale” clause that would reduce damages to zero in a lost-volume case.
- The court vacated the damages award because the master misclassified certain expenses; direct labor and similar items had to be deducted as direct costs in computing profit.
- The court left intact the award of $614 in incidental damages related to dismantling, testing, and reassembly for resale.
- The court vacated and remanded the allocation of the master’s costs for reconsideration in light of the revised damages determination.

## Legal Principles

- U.C.C. § 2-708(2) permits a seller to recover the profit it would have earned from full performance (including reasonable overhead) when standard market-difference damages are inadequate.
- A lost-volume seller may recover lost profits even after resale at the same price if it proves it would have made both the original sale and the resale absent the breach.
- The “due credit for … proceeds of resale” language in U.C.C. § 2-708(2) must be applied consistently with the remedial aim of placing the aggrieved seller in the position performance would have produced; it does not eliminate lost-volume profits.
- “Profit” under U.C.C. § 2-708(2) is calculated by subtracting direct costs of performance from expected revenue; only true overhead is included within the protected profit figure rather than deducted as a direct cost.
- Incidental expenses reasonably incurred because of the breach, such as costs to prepare goods for resale, are recoverable as incidental damages.

## Conclusion

The First Circuit treated Teradyne as a lost-volume seller entitled to lost-profit damages under U.C.C. § 2-708(2) despite a full-price resale, but vacated and remanded because the profit calculation failed to deduct certain direct costs and because the master’s cost allocation required reconsideration after recalculating damages.


Teradyne, Inc. v. Teledyne Indus., Inc., 676 F.2d 865 (1st Cir. 1982)