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U.S. Circuit Court for the District of Western Pennsylvania • 1881

Missouri Furnace Co. v. Cochran

8 F. 463 | 1881 U.S. App. LEXIS 2369

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Takeaway

In short, this case holds that after repudiation of an installment sales contract, damages ordinarily are fixed by market prices on the scheduled delivery dates—not by the buyer's later replacement forward contract.

Background

Missouri Furnace contracted to buy 36,621 tons of standard Connellsville coke from John M. Cochran during 1880. Cochran was to deliver nine thirteen-ton cars on each working day, at $1.20 per ton, subject to an adjustment if wages rose. After delivering 8,765 tons, Cochran notified Missouri Furnace on February 13, 1880, that he had rescinded the contract and made no further deliveries.

Missouri Furnace then contracted with Hutchinson to supply the remaining 29,587 tons at $4 per ton, the then-current rate for a forward contract. It sought as damages the difference between Cochran's $1.20 price and the $4 price in the Hutchinson contract.

The court instead instructed the jury to measure damages separately for each missed installment: the difference between Cochran's contract price and the market price of coke at the place and date each delivery should have occurred. The jury awarded $22,171.49, which, after accounting for money Missouri Furnace still owed Cochran for coke already delivered, represented total damages of $23,692.50. Missouri Furnace moved for a new trial, challenging the damages instruction.

Issues

Issue #1

Whether a buyer may measure damages for a seller's anticipatory refusal to make future installment deliveries by the price of a replacement forward contract made immediately after the refusal.

Holding

No. The buyer's damages are ordinarily measured by the difference between the contract price and the market price at the times and place when each installment should have been delivered.

Reasoning

The settled general rule for a seller's failure to deliver marketable goods is the difference between the contract price and the article's market value when delivery was due. Where deliveries are required in installments, that rule applies installment by installment, using the market value on each scheduled delivery date.

Cochran's February notice did not force Missouri Furnace to treat the contract as ended for damages purposes. A promisee may disregard an anticipatory repudiation, keep the contract alive, and hold the repudiating party responsible when performance is actually due. Conversely, the promisee may sue immediately, but the damages in that action remain those that would result from nonperformance at the agreed times, subject to mitigation.

Requiring the buyer to enter a new forward contract after repudiation would improperly make damages depend on a speculative market decision. If the market later fell, the seller could fairly object that the buyer unnecessarily increased the claimed loss. The repudiating party cannot choose the moment of repudiation as the moment that fixes damages, but neither may the innocent party shift the risks of a voluntary replacement speculation to the repudiating party.

Issue #2

Whether Missouri Furnace's Hutchinson contract at $4 per ton established its recoverable actual loss or justified departing from the ordinary market-price measure.

Holding

No. The Hutchinson contract was a voluntary transaction undertaken at Missouri Furnace's own risk and did not establish damages chargeable to Cochran.

Reasoning

The replacement contract was made during an extraordinary and short-lived spike in the coke market. Although Missouri Furnace acted in good faith, coke prices fell sharply by May, reaching about $1.30 per ton by the middle of that month. Missouri Furnace ultimately had more coke than its business required and paid to cancel Hutchinson contracts for 20,000 tons.

A replacement-contract price may not reflect the loss caused by the breach when the buyer was not required to make that contract and the contract exposes the buyer to later market changes. The ordinary scheduled-delivery market-price rule places the buyer in the position it would have occupied had the original contract been performed, without making the seller an insurer against losses from the buyer's subsequent market choices.

The court recognized an exception where an article is unavailable in the market because of limited production or another cause, and the buyer therefore suffers actual damages beyond the contract-market differential. But Connellsville coke had a market, and Missouri Furnace offered no evidence of special injury, such as losses from shutting down its furnaces. The case therefore did not warrant departure from the ordinary rule.