Sales and Leases | 227
Examples : (1) A manufacturer contracted to sell an x-ray machine to a physician for $10,000. The physician breached the contract before the manufacturer started work on or incurred any costs relative to the machine. In the ensuing lawsuit, the court properly awarded the manufacturer lost profits. The manufacturer’s direct, variable costs to produce the specific machine would have totaled $6,000 (including, e.g. , the cost of acquiring components). The manufacturer’s allocable share of fixed, overhead costs to produce the machine would have been $2,000 ( e.g. , allocable share of rent, property taxes, employee salaries, etc.). The manufacturer had no incidental damages. The manufacturer’s damages total $4,000, consisting of $10,000 (contract price) - $6,000 (variable costs saved due to the breach). The $2,000 in allocable fixed costs are ignored. [ See 2 Hawkland UCC Series § 2-708:2, Westlaw (database updated June 2021).] (2) A manufacturer contracted to sell an x-ray machine to a physician for $10,000. When the physician breached the contract, the manufacturer had spent $1,000 to acquire components to manufacture the machine. Had the manufacturer completed the machine, variable costs to produce it would have totaled $6,000. Allocable fixed costs to produce the machine would have been $2,000. In the ensuing lawsuit, the court properly awarded the manufacturer lost profits. The seller resold the components for $700, incurring $50 in resale expenses. The manufacturer’s damages total $4,350, consisting of: $10,000 (contract price) - $6,000 (variable costs) - $700 resale proceeds + $1,000 cost of components + $50 resale expenses. The $2,000 in allocable fixed costs are ignored. [ See 2 Hawkland UCC Series § 2-708:2, Westlaw (database updated June 2021).] b. The Lost-Volume Seller In the so-called lost-volume-seller scenario, the general § 2-708 damages formula is normally inadequate to put the seller in as good a position as the buyer’s performance would have. One case defines a lost-volume seller as a seller having “a predictable and finite number of customers and . . . the capacity either to sell to all new buyers or to make the one additional sale represented by the resale after the breach.” [ R.E. Davis Chemical Corp. v. Diasonics, Inc. , 826 F.2d 678 (7th Cir. 1987).] Broadly speaking, a seller is a lost- volume seller if, but for the buyer’s breach, the seller would have made two sales rather than just one. The rationale for awarding lost profits here is that the seller can make a specific number of sales in the year. So, when one sale is lost, the seller cannot recover that expected profit. [ Jewish Federation of Greater Des Moines v. Cedar Forest Prods. Co. , 2003 WL 23008855 (Iowa Ct. App. 2003); 2 Hawkland UCC Series § 2-708:2, Westlaw (database updated June 2021).]
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