Contracts Limerick of the Week: Neri

If the Americas Cup, were a competition among boats to see which could be the subject of the most celebrated lost volume seller case, the 1970 31-foot Broadwater “Bay Breeze” at issue in Neri v. Retail Marine Corp. would surely bring home the prize. Mr. Neri had to back out of his purchase of the boat because of an unexpected hospitalization and surgery (could this whole mess have been avoided through national health insurance?). He sued to recover his $4250 deposit, and Retail Marine counterclaimed seeking, among other things, lost profits. Neri contested lost profits on the ground that Retail Marine had resold the boat four months later, but Retail Marine contended that, but for the breach, it would have sold two boats, not just one.

The trial court sided with Neri, applying the traditional measure of damages provided in UCC 2-708(1):

(1) Subject to subsection (2) and to the provisions of this Article with respect to proof of market price (Section 2-723), the measure of damages for nonacceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article (Section 2-710) but less expenses saved in consequence of the buyer’s breach.

New York’s Court of Appeals reversed, finding that the damages permitted by the trial court did not grant Retail Marine the full benefit of the bargain and that UCC 2-708(2) permitted recovery of lost volume sales:

(2) If the measure of damages provided in subsection (1) 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 (Section 2-710), less due allowance for costs reasonably incurred and due credit for payments or proceeds of resale

Many commentators have pointed out that, although the Court of Appeals’ ruling seems to accord with the legislative intent of 2-708(2), in order to give effect to that intent, the court had to ignore the last phrase of the provision: “due credit for payments or proceeds of resale.” Still, most courts have followed Neri and judicially “fixed” what appears to be a clear drafting error. And that is the point of this Limerick:

Neri v. Retail Marine Corp.

In Neri, New York’s highest court
Offered lost volume sellers a port.
They’d still be at sea
If New York’s UCC
Weren’t lopped off a half-sentence short.

[Jeremy Telman]