Takeaway
In short, this case recognizes the retail seller as a lost-volume seller: a resale at the same price does not erase the profit lost when a buyer's breach costs the dealer an additional sale, and the seller may offset that profit and proven incidental expenses against the buyer's deposit.
The buyers agreed to purchase a new boat from Retail Marine for $12,587.40. They initially paid $40 and then increased their deposit to $4,250 in exchange for the dealer's promise to obtain immediate delivery from the manufacturer on the basis of a firm sale. Within days, the buyers' attorney purported to rescind because Mr. Neri was about to be hospitalized and would be unable to make payments. By then, the dealer had ordered the boat, and it was delivered at or about the time the rescission letter arrived.
The dealer kept the deposit and counterclaimed for damages caused by the buyers' breach. Four months later, it sold the same boat to another customer at the same price. The dealer proved without contradiction that it would have earned a $2,579 profit on the Neri sale and incurred $674 in storage, upkeep, finance, and insurance expenses while holding the boat. It also sought $1,250 in attorney's fees.
Special Term rejected the dealer's lost-profit claim because the boat was later resold for the same price, found no proof of incidental damages, and allowed the dealer only the $500 statutory retention permitted by UCC § 2-718(2)(b). It ordered return of the remaining $3,750 deposit to the buyers. The Appellate Division affirmed without opinion. The Court of Appeals granted the dealer leave to appeal.
Issue #1
Whether a retail dealer may recover its lost profit under UCC § 2-708(2) after a buyer repudiates a contract for standard-priced goods, even though the dealer later resells the same goods at the contract price.
Holding
Yes. When the ordinary market-price measure in UCC § 2-708(1) does not place a retail seller in the position performance would have produced, § 2-708(2) permits recovery of the profit the seller would have made on the breached sale.
Reasoning
UCC § 2-718 gives a breaching buyer a right to restitution of payments exceeding the statutory amount that the seller may retain, but that restitution right is expressly subject to an offset for damages the seller can establish under other provisions of Article 2. Thus, the $500 retention rule in § 2-718(2) did not limit the dealer to $500 if it could prove damages under § 2-708.
Section 2-708(1) normally measures a seller's damages by the difference between the market price at tender and the unpaid contract price, plus incidental damages. But § 2-708(2) expressly supplies a different measure when that formula is inadequate: the profit, including reasonable overhead, that the seller would have made through the buyer's full performance, plus incidental damages.
The dealer was a seller of standard-priced boats and established that it would have made a $2,579 profit on the buyers' purchase. Its later sale of the boat did not eliminate that loss. Had the buyers performed, the dealer would have completed the Neri sale and still made the later sale to the replacement buyer; the breach therefore cost it one sale and one profit.
The Court explained that the Code deliberately extended lost-profit recovery beyond manufacturers and their agents to appropriate retail transactions. The purpose is to avoid the economically artificial result under prior law that would deny a dealer its profit merely because it could sell the same standard-priced item to another purchaser.
Issue #2
Whether the dealer could recover its proven storage, upkeep, finance, and insurance costs as incidental damages.
Holding
Yes. The dealer was entitled to recover $674 in incidental damages because the uncontroverted expenses were commercially proper costs of caring for the boat after the buyers' breach.
Reasoning
Section 2-708(2) allows the seller to recover incidental damages in addition to lost profit; profit recovery is not an exclusive remedy. UCC § 2-710 includes commercially reasonable expenses incurred in the transportation, care, custody, return, or resale of goods after a buyer's breach.
The dealer introduced unchallenged proof that it incurred $674 for storage, upkeep, finance charges, and insurance during the interval between the buyers' default and the resale. Those expenses fit squarely within the statutory definition of incidental damages.
Because the evidence was neither objected to nor impeached, the trial court's finding that the dealer had failed to prove incidental damages lacked support in the record. The Appellate Division's unexplained affirmance could not preserve that unsupported finding.
Issue #3
Whether the dealer could recover attorney's fees incurred in litigating the buyers' breach as incidental damages.
Holding
No. Attorney's fees incurred in this action were not recoverable as incidental damages under the Uniform Commercial Code.
Reasoning
The Code's incidental-damages provisions cover commercially reasonable protective and transactional expenses resulting from the breach, such as expenses of caring for or reselling the goods. Litigation fees incurred to enforce the seller's rights in this lawsuit are not among those contemplated expenses.
The Court therefore upheld the trial court's denial of the dealer's $1,250 claim for attorney's fees, notwithstanding its conclusion that the dealer could recover lost profits and the proven costs of holding the boat.