Court Opinion

ID: 8598107
Source: CourtListenerOpinion
Date Created: 2022-11-23 16:05:34.664474+00
Date Added: 2024-06-11T16:55:03.574673
License: Public Domain

Friedman, Chief Judge,
dissenting in part:
The problem in determining damages in this case stems from two facts: (1) the flower bonds had a special value, substantially above their market value, when used to pay estate taxes, and (2) the market value, but not the special value, of these particular bonds changed between the time the plaintiff tendered the bonds to the United States in partial satisfaction of the estate tax liability and the time the government returned the bonds to the plaintiff after it had refused to redeem them at face value in satisfaction of that liability.
The method of calculating damages the court applies in part II of its opinion does not, in my view, take proper account of these facts. In applying the traditional breach of contract damages formulation to the significantly different situation here, the court has awarded greater damages than I think the plaintiff is entitled to receive.
The court properly recognizes that the touchstone for determining damages is to put the plaintiff as closely as possible in the same situation in which it would have been if the government had not breached its contractual obligation to accept the bonds at their face value of $700,000 in partial payment of the estate tax liability. I part company with the court, however, in the amount necessary to accomplish that objective.
1. If the government had honored its contractual commitment to accept the bonds at their face value of $700,000 in partial payment of the estate tax liability, the plaintiff would have paid only $205,333.10 to satisfy fully that liability ($905,333.10 minus $700,000, see part I of the majority’s opinion). Actually, however, the plaintiff was required to pay $817,953.91 (the reduction being due to revaluation of the bonds) to discharge that tax liability and $51,426.93 to cover deficiency interest, for a total of $869,380.84. Because of the government’s breach, then, the plaintiff was required to pay an additional $664,047.74.
*478There must be subtracted from that additional payment, however, any amounts the plaintiff received that it would not have received if the government had accepted the bonds. Northern Helex Co. v. United States, 207 Ct. Cl. 862, 875-76, 524 F.2d 707, 713-14 (1975); 5 A. Corbin, Corbin on Contracts §§ 1038,1041 (3d ed. 1968); J. Murray, Murray on Contracts § 221, p. 442 n. 18 (2d ed. 1974).
There were two such items: (i) the accrued interest on the returned bonds from the date of tender to the date of return, of $37,181.51, and (ii) the fair market value of the bonds, which on the date of return was $600,685.50. The bonds should be valued as of the date of return because that was the first time after tender at which the plaintiff could obtain their fair market value by selling them. The increase in market value while the government held the bonds therefore reflected an additional amount the plaintiff received that was attributable to the government’s breach. The plaintiff thus received $637,867.01 as a direct consequence of the government’s breach.
The difference between the total additional payment of $664,047.74 the plaintiff made and the $637,867.01 additional it received is $26,180.73. That amount would put the plaintiff in the same situation it would have been in if the government had not breached the contract. In my opinion that is the proper measure of the damages to which it is entitled.
2. Even if one accepts the court’s approach in determining damages, I cannot agree that the plaintiff’s recovery should be calculated on the basis of the fair market value of the bonds on the date of tender. I think the bonds should be valued as of the date on which the government returned them to the plaintiff.
The rule the court applies — that the person injured is entitled to receive the difference between the contract price and the "market value at the time and place of the failure to perform” — is derived from cases in which a buyer refuses to accept goods that a seller tenders. In that situation, the seller normally never relinquishes possession of the goods and so immediately can resell them at their fair market price; therefore, it is made whole if it receives as damages *479the difference between the contract price and the market price as of the date of tender.
The rule, which section 2-708(1) of the Uniform Commercial Code adopts, has been criticized when applied in situations where there is a substantial delay between the tender of the goods and the buyer’s rejection of them during which interval the market value of the goods has changed. 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, 258-59 (1963); J. Murray, supra at § 242, pp. 488-89 n. 18. Such an application yields damages bearing no resemblance to the plaintiffs injury. Peters, supra, 73 Yale L.J. at 258-59. Furthermore, in that situation determining market value as of the date of tender improperly shifts the risk of market fluctuation from the breaching party to the innocent victim of the breach.
In the present case, the rule the court applies — determining damages on the basis of the market value of the bonds on the date of tender — has the same unfortunate effect. If the value of the bonds increases between the time of tender and return, as it did in the present case, the plaintiff will have a windfall because it receives more than it could have expected had there been no breach. As explained in part I, it cost the plaintiff $26,180.73 more to satisfy the estate tax liability than it would have paid if the government had not breached its contractual obligation. (This is the same amount to which the plaintiff would have been entitled using the majority’s formula but substituting fair market value as of the date of return — $600,685.50—for the value on the date of tender — $564,375.) The $62,491.23 damages the court awards thus gives the plaintiff $36,710.50 more than is necessary to make it whole.
The court seeks to justify this result on the ground that valuing the bonds on the date of return "would result in the party committing the breach being able to select the most advantageous date of return, depending on the market, in order to minimize damages owed to the injured party.” The other side of this coin, however, is that valuing the bonds on the date of tender eliminates any incentive for the government to return the bonds promptly and thus to minimize its *480damages, since those damages have been set on the date of tender. The rule I would apply, however, does give the government an incentive to return the bonds promptly, since if the value of the bonds falls, its damages will increase.
Moreover, the court’s theory would be unfair to an estate if the market price of the bonds decreased rather than increased between tender and return. In that situation the effect of valuing the bonds as of the date of tender would be to award damages that give the plaintiff less than the loss it suffered from the government’s breach.
For example, assume that in the present case the value of the bonds when they were returned was not $600,000 but $500,000. In that event the plaintiff would have received from the government bonds and accrued coupon interest totaling $537,181.51, but still would have paid an additional $664,047.74 to satisfy the estate tax liability. If the bonds were valued as of the date of return, the plaintiff would be entitled to damages of $126,866.23, which would be the amount necessary to make it whole.
Under the court’s theory that fluctuation in the value of the bonds between tender and return is irrelevant, the plaintiff would receive the same damages it receives in the present case of $62,491.23. This would be less than one-half of its actual damages. The result would be that a significant portion of the injury resulting from the government’s breach of the contract would be borne by the injured party instead of by the party who caused the injury. I know of no principle of damages that would countenance, let alone require, that result.