SMU Law Review


Article Two of the Uniform Commercial Code stands today as a living testament to Karl Llewellyn and the many other brilliant and dedicated lawyers from well over a half century ago who participated actively in its drafting. Of the Code’s several articles, Article Two is particularly noteworthy because it alone has survived to the present day without significant substantive amendment. That longevity is most remarkable given the ensuing fifty plus years of expanded knowledge, technological advance, and innovative changes in fundamental business practice that have occurred in our ever-evolving economy. At its inception, much of Article Two represented novel departure from the archaic property-based concepts of its predecessor, the Uniform Sales Act. But nothing was more so than Article Two’s promulgation of a broad array of remedy options for both sellers and buyers that were designed largely either to replace or subjugate the anachronistic but ubiquitous market price damages remedy, a primitive relic of the Langdellian-like formalism that had previously permeated sales law.

Within little more than a short decade and guided by the fundamental compensation policy articulated in § 1-305, the courts established a readily accessible set of rules for applying the various remedies by focusing largely on the position relative to contract performance in which the parties found themselves at the time of breach. From early on, the courts left little for ongoing debate, the major exception being arguments from a small group of scholars and a diminishing number of courts that a recovery of market price damages should always be allowed to either party plaintiff regardless of the actual loss suffered from the breach and regardless of whether the aggrieved party could reasonably have avoided the loss.

This article addresses the three categories of cases in which a claim has been made under § 2-708 or § 2-713 for market price damages that exceeds the actual damages that were reasonably unavoidable. The first category involves those in which the plaintiff, a middleman, has hedged a supply contract with a forward resale contract and either his supplier or the forward contract buyer has breached. The second category addresses those situations in which the plaintiff seeks market price damages but has not taken advantage of a reasonable opportunity to mitigate damages by a resale or cover. The third category addresses those situations in which the plaintiff seeks a recovery of market price damages that were actually avoided by a resale or cover. In rejecting the formalistic approach of market price advocates who favor recoveries of windfall damages, the author challenges both prongs of analysis that the advocates typically profer to justify their arguments: first, the notion that there was once a widely-accepted pre-Code principle that forced an election of damages upon sellers who resold goods post breach; and second, the extrapolation by the advocates of broad and artful interpretations of the Article Two drafting history.