Opinion ID: 437273
Heading Depth: 1
Heading Rank: 2

Heading: time for measuring buyer's damages

Text: 11 Both parties find fault with the time at which the district court measured Helm's damages for Cosden's anticipatory repudiation of orders 05, 06, and 07. 5 Cosden argues that damages should be measured when Helm learned of the repudiation. Helm contends that market price as of the last day for delivery--or the time of performance--should be used to compute its damages under the contract-market differential. We reject both views, and hold that the district court correctly measured damages at a commercially reasonable point after Cosden informed Helm that it was cancelling the three orders. 12 Article 2 of the Code has generally been hailed as a success for its comprehensiveness, its deference to mercantile reality, and its clarity. Nevertheless, certain aspects of the Code's overall scheme have proved troublesome in application. The interplay among sections 2.610, 2.711, 2.712, 2.713, and 2.723, Tex.Bus. & Com.Code Ann. (Vernon 1968), represents one of those areas, and has been described as an impossible legal thicket. J. White & R. Summers, Uniform Commercial Code Sec. 6-7 at 242 (2d ed. 1980). The aggrieved buyer seeking damages for seller's anticipatory repudiation presents the most difficult interpretive problem. 6 Section 2.713 describes the buyer's damages remedy: 13 Buyer's Damages for Non-Delivery or Repudiation 14 (a) Subject to the provisions of this chapter with respect to proof of market price (Section 2.723), the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this chapter (Section 2.715), but less expenses saved in consequence of the seller's breach. 15 (emphasis added). 16 Courts and commentators have identified three possible interpretations of the phrase learned of the breach. If seller anticipatorily repudiates, buyer learns of the breach: 17 (1) When he learns of the repudiation; 18 (2) When he learns of the repudiation plus a commercially reasonable time; or 19 (3) When performance is due under the contract. 20 See, e.g., First National Bank of Chicago v. Jefferson Mortgage Co., 576 F.2d 479 (3d Cir.1978); Cargill, Inc. v. Stafford, 553 F.2d 1222 (10th Cir.1977); J. White & R. Summers Sec. 6-7 at 240-52; Note, U.C.C. Sec. 2-713: Anticipatory Repudiation and the Measurement of an Aggrieved Buyer's Damages, 19 Wm. & Mary L.Rev. 253 (1977). 21 We would not be free to decide the question if there were a Texas case on point, bound as we are by Erie to follow state law in diversity cases. We find, however, that no Texas case has addressed the Code question of buyer's damages in an anticipatory repudiation context. Texas, alone in this circuit, does not allow us to certify questions of state law for resolution by its courts. See United Services Life Insurance Co. v. Delaney, 396 S.W.2d 855 (Tex.1965). 22 Fredonia Broadcasting Corp. v. RCA Corp., 481 F.2d 781 (5th Cir.1973) (Fredonia I ), contains dicta on this question. The court merely quoted the language of the section and noted that the time for measuring market price--when buyer learns of the breach--was the only difference from pre-Code Texas law. 7 Id. at 800. See Anderson, Learning of Breaches under Section 2-713 of the Code, 40 Tex.B.J. 317, 320 (1977). We have found no Texas case quoting or citing Fredonia I for its dicta on damages under section 2.713. Although Fredonia I correctly stated the statutory language, it simply did not address or recognize the interpretive problems peculiar to seller's anticipatory repudiation. 8 23 Since Fredonia I, four Texas courts have applied section 2.713 to measure buyer's damages at the time he learned of the breach. Hargrove v. Powell, 648 S.W.2d 372 (Tex.App.--San Antonio 1983, no writ); Jon-T Farms, Inc. v. Goodpasture, Inc., 554 S.W.2d 743 (Tex.Civ.App.--Amarillo 1977, writ ref'd n.r.e.); Tennell v. Esteve Cotton Co., 546 S.W.2d 346 (Tex.Civ.App.--Amarillo 1976, writ ref'd n.r.e.); Wilson v. Hays, 544 S.W.2d 833 (Tex.Civ.App.--Waco 1976, writ ref'd n.r.e.). In all of these cases the aggrieved buyer learned of the breach at or after the time of performance. 9 24 Two recent Texas cases indicate that appropriate measure for buyer's damages in the anticipatory repudiation context has not been definitively decided. In Aquamarine Associates v. Burton Shipyard, 645 S.W.2d 477 (Tex.App.--Beaumont 1982), aff'd, 659 S.W.2d 820 (Tex.1983), seller anticipatorily repudiated its obligation to construct and deliver ships. After seller learned of the repudiation, it covered by contracting with another party to complete the vessels. Since buyer covered under section 2.712, the jury's answer to the section 2.713 damages issue was properly disregarded. Referring to comment 5 of section 2.713, however, the Texas Court of Civil Appeals cited two cases that measured buyer's damages for anticipatory repudiation at different times. Id. at 479 & n. 8. Cargill, Inc. v. Stafford, 553 F.2d 1222 (10th Cir.1977), held that buyer's damages for anticipatory repudiation should be measured at a commercially reasonable time after he learned of the repudiation if he should have covered, and at the time of performance if buyer had a valid reason for failure or refusal to cover. Id. at 1226-27. In Ralston Purina Co. v. McFarland, 550 F.2d 967 (4th Cir.1977), the court measured buyer's damages at the market price prevailing on the day seller anticipatorily repudiated. Id. at 971. The two citations in Aquamarine reveal uncertainty concerning the applicable time for measuring damages. 25 Hargrove v. Powell, 648 S.W.2d 372 (Tex.App.--San Antonio 1983, no writ), also indicates that the interpretation of section 2.713 in an anticipatory repudiation case has not been settled in Texas. In referring to the hypothetical case of seller's repudiation, the Hargrove court cited Cargill and Professor Anderson's article, which presents the argument that time when the buyer learned of the breach means the time for performance or later. Id. at 377; see Anderson, supra. 26 We do not doubt, and Texas law is clear, that market price at the time buyer learns of the breach is the appropriate measure of section 2.713 damages in cases where buyer learns of the breach at or after the time for performance. This will be the common case, for which section 2.713 was designed. See Peters, Remedies for Breach of Contracts Relating to the Sale of Goods Under the Uniform Commercial Code: A Roadmap for Article Two, 73 Yale L.J. 199, 264 (1963). In the relatively rare case where seller anticipatorily repudiates and buyer does not cover, see Anderson, supra, at 318, the specific provision for anticipatory repudiation cases, section 2.610, authorizes the aggrieved party to await performance for a commercially reasonable time before resorting to his remedies of cover or damages. 10 27 In the anticipatory repudiation context, the buyer's specific right to wait for a commercially reasonable time before choosing his remedy must be read together with the general damages provision of section 2.713 to extend the time for measurement beyond when buyer learns of the breach. Comment 1 to section 2.610 states that if an aggrieved party awaits performance beyond a commercially reasonable time he cannot recover resulting damages which he should have avoided. This suggests that an aggrieved buyer can recover damages where the market rises during the commercially reasonable time he awaits performance. To interpret 2.713's learned of the breach language to mean the time at which seller first communicates his anticipatory repudiation would undercut the time that 2.610 gives the aggrieved buyer to await performance. 28 The buyer's option to wait a commercially reasonable time also interacts with section 2.611, which allows the seller an opportunity to retract his repudiation. Thus, an aggrieved buyer learns of the breach a commercially reasonable time after he learns of the seller's anticipatory repudiation. The weight of scholarly commentary supports this interpretation. See J. Calamari & J. Perillo, Contracts Sec. 14-20 (2d ed. 1977); Sebert, Remedies Under Article Two of the Uniform Commercial Code: An Agenda for Review, 130 U.Pa.L.Rev. 360, 372-80 (1981); Wallach, Anticipatory Repudiation and the UCC, 13 U.C.C.L.J. 48 (1980); Peters, supra, at 263-68. 29 Typically, our question will arise where parties to an executory contract are in the midst of a rising market. To the extent that market decisions are influenced by a damages rule, measuring market price at the time of seller's repudiation gives seller the ability to fix buyer's damages and may induce seller to repudiate, rather than abide by the contract. By contrast, measuring buyer's damages at the time of performance will tend to dissuade the buyer from covering, in hopes that market price will continue upward until performance time. 30 Allowing the aggrieved buyer a commercially reasonable time, however, provides him with an opportunity to investigate his cover possibilities in a rising market without fear that, if he is unsuccessful in obtaining cover, he will be relegated to a market-contract damage remedy measured at the time of repudiation. The Code supports this view. While cover is the preferred remedy, the Code clearly provides the option to seek damages. See Sec. 2.712(c) & comment 3. If [t]he buyer is always free to choose between cover and damages for non-delivery, and if 2.712 is not intended to limit the time necessary for [buyer] to look around and decide as to how he may best effect cover, it would be anomalous, if the buyer chooses to seek damages, to fix his damages at a time before he investigated cover possibilities and before he elected his remedy. See id. comment 2 & 3; Dura-Wood Treating Co. v. Century Forest Industries, Inc., 675 F.2d 745, 754 (5th Cir.), cert. denied, 459 U.S. 865, 103 S.Ct. 144, 74 L.Ed.2d 122 (1982) (buyer has some time in which to evaluate the situation). Moreover, comment 1 to section 2.713 states, The general baseline adopted in this section uses as a yardstick the market in which the buyer would have obtained cover had he sought that relief. See Sec. 2.610 comment 1. When a buyer chooses not to cover, but to seek damages, the market is measured at the time he could have covered--a reasonable time after repudiation. See Secs. 2.711 & 2.713. 31 Persuasive arguments exist for interpreting learned of the breach to mean time of performance, consistent with the pre-Code rule. See J. White & R. Summers, supra, Sec. 6-7; Anderson, supra. If this was the intention of the Code's drafters, however, phrases in section 2.610 and 2.712 lose their meaning. If buyer is entitled to market-contract damages measured at the time of performance, it is difficult to explain why the anticipatory repudiation section limits him to a commercially reasonable time to await performance. See Sec. 2.610 comment 1. Similarly, in a rising market, no reason would exist for requiring the buyer to act without unreasonable delay when he seeks to cover following an anticipatory repudiation. See Sec. 2.712(a). 32 The interplay among the relevant Code sections does not permit, in this context, an interpretation that harmonizes all and leaves no loose ends. We therefore acknowledge that our interpretation fails to explain the language of section 2.723(a) insofar as it relates to aggrieved buyers. We note, however, that the section has limited applicability--cases that come to trial before the time of performance will be rare. Moreover, the comment to section 2.723 states that the section is not intended to exclude the use of any other reasonable method of determining market price or of measuring damages.... In light of the Code's persistent theme of commercial reasonableness, the prominence of cover as a remedy, and the time given an aggrieved buyer to await performance and to investigate cover before selecting his remedy, we agree with the district court that learned of the breach incorporates section 2.610's commercially reasonable time. 11 33