Sales and Leases | 228
Requirements to Recover Lost Profits as a Lost-Volume Seller To recover lost profits as a lost-volume seller, the seller must prove that three requirements are satisfied. 1) Capacity to Make an Additional Sale To recover lost profits as a lost-volume seller, the seller must prove that it had the capacity to make an additional sale. In other words, the seller must show that it had sufficient product on hand to satisfy all buyers. Yet lost profits may be awarded on goods to be manufactured, provided the seller had the capacity to manufacture the goods. [ R.E. Davis Chemical Corp. v. Diasonics, Inc. , 924 F.2d 709 (7th Cir. 1991); 2 Hawkland UCC Series § 2-708:2, Westlaw (database updated June 2021).] 2) Profitability of Making Both Sales For a seller to recover lost profits as a lost-volume seller, it must prove that (1) the sale to the breaching buyer would have been profitable and (2) making an additional sale would have been profitable. After all, if the seller would have made no profit, then awarding the seller lost profits would produce a windfall rather than simply making the seller whole. [ R.E. Davis Chemical Corp. v. Diasonics, Inc. , 826 F.2d 678 (7th Cir. 1987).] 3) Probability of Making Additional Sale but for Buyer’s Breach To recover lost profits as a lost-volume seller, the seller must show that, but for the buyer’s breach, the seller likely would have made an additional sale. [ R.E. Davis Chemical Corp. v. Diasonics, Inc. , 924 F.2d 709 (7th Cir. 1991).] Example: A carpet manufacturer had 2,000 identical carpets on hand. The manufacturer contracted to sell 1,000 of these carpets to a retailer for $10,000. The manufacturer’s profit on the sale would have been $3,000. Soon after the retailer breached the contract, the manufacturer sold the 1,000 carpets to a distributor for $10,000, reaping a $3,000 profit. The manufacturer likely qualifies as a lost-volume seller. When the manufacturer contracted with the retailer, it had 2,000 identical carpets on hand. Had the retailer not breached the contract, the manufacturer could have sold 1,000 carpets to the retailer and another 1,000 to the distributor and reaped $3,000 in profits on each sale. [ See 2 Hawkland UCC Series § 2-708:2, Westlaw (database updated June 2021).]
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