Unique Designs, Inc. v. Pittard Machinery Co.

• Decision Date: 28 June 1991
• Docket Number: Nos. A91A0491,A91A0492,s. A91A0491
• Citation: 409 S.E.2d 241,200 Ga.App. 647
• Parties: , 16 UCC Rep.Serv.2d 116 UNIQUE DESIGNS, INC. v. PITTARD MACHINERY COMPANY. PITTARD MACHINERY COMPANY v. UNIQUE DESIGNS, INC.
• Court: Georgia Court of Appeals

Page 241

409 S.E.2d 241

200 Ga.App. 647, 16 UCC Rep.Serv.2d 116

UNIQUE DESIGNS, INC. v. PITTARD MACHINERY COMPANY.

PITTARD MACHINERY COMPANY v. UNIQUE DESIGNS, INC.

Nos. A91A0491, A91A0492.

Court of Appeals of Georgia.

June 28, 1991.

Reconsiderations Denied July 23, 1991 and July 25, 1991.

Certiorari Denied Sept. 19, 1991.

Paul C. Myers, Chamblee, for appellant.

Swift, Currie, McGhee & Hiers, Jeffrey Y. Lewis, William C. Collins, Jr., Atlanta, for appellee.

COOPER, Judge.

In January or February of 1988, Pittard Machinery Company ("Pittard"), a distributor of lathes, attempted to sell to Unique Designs, Inc. ("Unique") a "Mori Seiki" lathe; however, Unique instead purchased a less expensive "Mazak" lathe from one of Pittard's competitors. In June of 1988, Unique contacted Pittard and requested Pittard's assistance in disposing of the Mazak lathe because it had turned out to be incompatible with Unique's business. During the course of this conversation, Unique indicated that in return for Pittard's assistance in disposing of the Mazak lathe, Unique would replace the Mazak lathe by purchasing a Mori Seiki lathe from Pittard. Pittard proceeded to arrange for the resale of the Mazak lathe by putting Unique in contact with an international broker of machinery who quickly found a purchaser for the used lathe. Pittard never asked Unique to pay a commission on the sale of the Mazak lathe because of its expectation that Unique would be replacing the Mazak lathe with a Mori Seiki lathe purchased from Pittard. Thereafter, Unique and Pittard commenced negotiating the price of the Mori Seiki lathe and during the course of a telephone conversation, the parties finally agreed upon a price of either $104,000 or $104,850, and arrangements were made for the delivery of a lathe to Unique. It is undisputed that an oral agreement to purchase the lathe was made, although the amount of the purchase price is in dispute.

The day after the agreement was reached, Unique contacted Pittard and cancelled its order to purchase the lathe. Apparently, Unique had been negotiating all along with one of Pittard's competitors and had used its contract with Pittard as leverage to secure a reduced price on a different model lathe with the competitor. Shortly after Unique's repudiation of the contract, Pittard was able to resell the Mori Seiki lathe to one of its regular customers, Sieco, Inc. ("Sieco"), for $110,000.

Pittard brought suit against Unique seeking general damages and attorney fees for Unique's breach of its agreement to purchase the lathe. The trial court granted Pittard's motion for summary judgment on the issue of liability, ruling that the oral contract between the parties was valid pursuant to OCGA § 11-2-201(3)(b), and Pittard was a "high volume dealer," entitled to recover its lost profits pursuant to OCGA § 11-2-708(2), without having to offset the proceeds it received from the sale of the lathe to Sieco. The case proceeded to trial on the issue of damages, and the jury awarded Pittard $18,000 in general damages and $18,000 in attorney fees. Following the jury verdict, the trial court entered judgment in favor of Pittard for $18,000 in general damages but set aside the jury's award of attorney fees. Unique appeals from the trial court's grant of partial summary judgment to Pittard and the final judgment entered on the jury verdict for general damages (Case No. A91A0491). Pittard cross-appeals from the trial court's order setting aside the jury's award of attorney fees (Case No. A91A0492).

Case No. A91A0491

1. Unique contends in enumerations 1, 2, 3, 4, 9, 10 and 11 that the trial court erred in adopting the "lost volume dealer" rule, which allowed Pittard to recover its lost profits on the repudiated contract without offset for the proceeds received from the resale of the lathe to Sieco.

Both Pittard and Unique appear to be in agreement that OCGA § 11-2-708(2) sets forth the proper measure of damages in circumstances such as those presented by this appeal. Although there are no Georgia cases directly on point, this court has held that "[i]f the measure of damages under [OCGA § 11-2-708(1) ] is inadequate to put the seller in as good a position as if the contract had been fully performed, then the damages are as prescribed by (2). [Cits.]" Franklin v. Demico, Inc., 179 Ga.App. 775(1), 347 S.E.2d 718 (1986). Numerous authoritative writers and other jurisdictions agree that UCC § 2-708(2) (OCGA § 11-2-708(2)) is applicable under the present circumstances. See White & Summers, Uniform Commercial Code, § 7-9 (1988) (fn. 4). It is also the opinion of these authorities that the statutory history of the Uniform Commercial Code indicates that UCC § 2-708(2) was intended to provide an adequate remedy for the "lost volume dealer." "Lost volume dealer," sometimes referred to as a "lost volume seller," refers to a seller who due to the nature of its business, is damaged by a buyer's breach to the extent that it loses the entire profit from the sale.

"When the seller is a dealer he is entitled to recover lost profits and incidental damages from a repudiating buyer, even though the seller has resold the goods to another buyer at the same price as the original buyer had contracted to pay, for the reason that if the original buyer had not repudiated, the seller would have been able to make two sales and thus obtain two profits.

"The rationale for the rule for measuring damages in the case of a seller who is a middleman is that the breach by his buyer does not make possible a new sale which the seller could not have otherwise made in which new sale the profit lost upon the sale to the original buyer will be replaced; but rather, results in an irretrievable loss of profits." 4 Anderson, U.C.C., § 2-708:21 (1983).

In order for a seller to establish that he is a "lost volume dealer," he must prove that even though he later resold the repudiated contract goods, the sale to the third party would have been made regardless of the buyer's breach so that the seller would have realized two profits from two sales. "The key inquiry is the sellers' ability to provide the product to both the breaching buyer and the resale buyer." Ragen Corp. v. Kearney & Trecker Corp., 912 F.2d 619, 627 (3rd Cir.1990). See also National Controls v. Commodore Business Machines, 163 Cal.App.3d 688, 209 Cal.Rptr. 636, 643 (1985); Teradyne, Inc. v. Teledyne Indus., 676 F.2d 865 (1st Cir.1982); Snyder v. Herbert Greenbaum & Assoc., 38 Md.App. 144, 380 A.2d 618, 624 (1977).

In the case sub judice, the record reveals that Pittard carries a large inventory of lathes; that the lathe to be delivered to Unique was a stock inventory item not specially ordered, made or adapted to any specifications on Unique's part; and that the sale of the Mori Seiki lathe to Sieco would have occurred even if Unique had not repudiated its contract. Thus, Pittard has clearly established itself as a "lost volume dealer," entitled to recover its lost profits pursuant to OCGA § 11-2-708(2).

OCGA § 11-2-708(2) provides: "If the measure of damages provided in subsection (1) of this Code section is inadequate to put the seller in as good a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this article (Code section 11-2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale." Unique argues that the formula provided for in this code provision should be strictly applied so that Pittard should be required to give Unique due credit for the payments or proceeds from the resale of the lathe to Sieco. However, the overwhelming view of modern authority has concluded that the formula, if strictly applied, will not yield the correct recovery that a "lost volume dealer" deserves. See White & Summers, supra § 7-13 (fn. 3). As the court in Snyder v. Herbert Greenbaum & Assoc., supra, stated 380 A.2d at p. 625: "Logically, lost volume status, which entitles the seller to the § 2-708(2) formula rather than the formula found in § 2-708(1), is inconsistent with a credit for the proceeds of resale. The whole concept of lost volume status is that the sale of the goods to the resale purchaser could have been made with other goods had there been no breach. In essence, the original sale and the second sale are independent events, becoming related only after breach, as the original sale goods are applied to the second sale. To require a credit for the proceeds of resale is to deny the essential element that entitles the lost volume seller to § 2-708(2) in the first place--the mutual independence of the contract and the resale.

"Practically, if the 'due credit' clause is applied to the lost volume seller, his measure of damages is no different from his recovery under § 2-708(1). Under § 2-708(1) he recovers the contract/market differential and the profit he makes on resale. If the 'due credit' provision is applied, the seller recovers only the profit he makes on resale plus the difference between the resale price and the contract price, an almost identical measure to § 2-708(1). If the 'due credit' clause is applied to the lost volume seller, the damage measure of 'lost profits' is rendered nugatory, and he is not put in as good a position as if there had been performance."

" ' "(T)he cardinal rule to guide the construction of laws is, first, to ascertain the ... intent and purpose in enacting (them), and then to give (them) that construction which will effectuate the intent and purpose." [Cits.]' [Cit.]" American Med. Intl. v. Charter Lake Hosp. 186 Ga.App. 204(2), 366 S.E.2d 795 (1988). OCGA § 11-1-106(1) provides that "[t]he remedies provided by [the Uniform Commercial Code] shall be liberally administered to the end that the aggrieved party may be put in as good a position as if...