Facts
- A farmer contracted to sell a specified sunflower seed crop to a grain cooperative at fixed prices, with delivery in three installments through May 1989.
- The cooperative had a back-to-back resale arrangement with a downstream buyer and expected only a small handling margin.
- After partial delivery, weather and a short crop caused the market price of sunflower seeds to rise to roughly double the contract price.
- The farmer repudiated the cooperative contract and sold the remaining seed to another buyer at the higher market price, obtaining several thousand dollars more than the cooperative contract would have paid.
- The cooperative intervened in litigation arising from the later sale and sought damages for the farmer’s nondelivery under the earlier contract.
Issues
- For a seller’s bad-faith nondelivery/repudiation of goods under Article 2, should the buyer’s damages be limited to the buyer’s actual lost profit under the U.C.C.’s general remedial provision, or measured by the market-price-minus-contract-price formula in U.C.C. § 2-713?
- Does awarding market-differential damages that exceed the buyer’s provable net profit constitute an impermissible penalty?
Decision
- The Kansas Supreme Court held that K.S.A. 84-2-713 (U.C.C. § 2-713) supplies the governing measure of damages for seller nondelivery or repudiation.
- The court rejected limiting damages to the cooperative’s small lost handling margin under K.S.A. 84-1-106 (U.C.C. § 1-106).
- The court affirmed the appellate ruling on the damages measure and remanded for recalculation consistent with § 2-713.
Legal Principles
- When both a general U.C.C. remedial statement and a specific Article 2 damages formula apply, the specific provision governs.
- Under U.C.C. § 2-713, the buyer’s damages for nondelivery/repudiation are the market price at the time the buyer learned of the breach minus the contract price, plus incidental and consequential damages, less expenses saved.
- Market-differential damages are not barred as “penal” merely because they may exceed the buyer’s provable net profit on a particular transaction.
- Applying § 2-713 serves commercial policy by discouraging opportunistic breach in rising markets and preventing sellers from treating fixed-price contracts as one-way options.
Conclusion
Kansas applies U.C.C. § 2-713’s market-minus-contract measure for a seller’s nondelivery, even where the buyer’s actual expected profit was small, and treats that statutory remedy as compensatory within the Code’s remedial scheme rather than an impermissible penalty.