What Are Lost Volume Damages in Contract Law? Locks v. Wade and UCC Section 2-708

Transcript

imagine that you and a prospective homeowner have entered a contract you agree to sell and the prospective homeowner agrees to buy your home for $500,000 the buyer breaches but with no trouble you quickly reach an identical agreement with another purchaser for $500,000 you are in exactly the same position you expected to be in despite the first buy... Read More

Key Insights

• 😚 Lost volume damages allow sellers to recover damages even if they have enough goods to meet the demand.
• 🌂 The Locks v. Wade case established the concept of lost volume damages in contract law.
• 💼 The UCC, specifically Section 2-708, provides provisions for sellers to claim damages in the case of buyer breach.
• 👋 The supply and demand dynamics determine the impact of a breach on the volume of goods sold.
• 🔇 Lost volume damages are only applicable if the breach is a but-for cause of the change in the seller's volume.
• ⚾ Section 2-708 of the UCC calculates damages based on the difference between market price and contract price, with allowances for incidental damages.
• 👋 Sellers with unlimited quantities of goods and who resell goods after a breach can claim damages if the measure provided in Section 2-708(1) is inadequate.

Questions & Answers

Q: What are lost volume damages in contract law?

Lost volume damages compensate a seller or lessor when a buyer’s breach reduces the total volume of transactions the seller could have completed. A later sale or lease does not replace the breached bargain when the seller could have completed both transactions.

Q: What happened in Locks v. Wade?

Gerry Locks agreed to lease a jukebox to Gerald Wade for two years, provide records, replace worn parts, and split the profits. Wade repudiated before installation, Locks leased the equipment to others, and then sued Wade for breach of contract.

Q: How much did Locks recover from Wade?

Locks recovered $836. The amount represented the minimum payment of $20 per week for two years, less the costs Locks would have incurred putting in and maintaining the jukebox.

Q: Why did Wade argue that Locks had not lost two years of profits?

Wade argued that Locks had leased the equipment elsewhere after the breach. He claimed any recovery should be reduced by the amount Locks earned from those later leases.

Q: Why did the court reject Wade’s argument?

The court found that Locks had many jukeboxes available while locations and prospective lessees were scarce. Locks could have earned profits from both Wade’s lease and the later leases, so reducing his claim would deny him the benefit of both bargains.

Q: How do supply and demand affect lost volume damages?

Lost volume can exist when supply exceeds demand because a breach may reduce the seller’s total transaction volume. If demand exceeds the available supply and every unit would be leased regardless of the breach, there is no lost volume.

Q: What is the but-for cause test for lost volume damages?

The inquiry asks whether the breach caused a change in the seller’s sales or leasing volume. Lost volume damages apply when the breach is a but-for cause of that reduction, rather than the reason the later transaction occurred.

Q: Who must prove that there was no lost volume?

The breaching lessee bears the burden of proving that there was no lost volume. The transcript identifies this allocation of proof as important in these cases.

Summary & Key Takeaways

• Definition: Lost volume damages compensate for a transaction lost through breach when a later sale or lease does not replace the breached bargain.

• Who: Gerry Locks leased music equipment, and Gerald Wade was the lessee who repudiated their agreement before installation.

• Number: Wade promised a minimum payment of $20 per week under the jukebox lease.

• Number: The jukebox lease was to continue for two years.

• Number: Locks recovered $836 after accounting for the costs of installing and maintaining the jukebox.

• Compare: Locks had many jukeboxes and limited demand, unlike a homeowner who has only one house available to sell.

• Definition: The short side of the market determines the quantity sold when supply and demand are unequal.

• Compare: Supply above demand can create lost volume, while demand above available supply means every unit may be leased despite the breach.

• Definition: Lost volume requires the breach to be a but-for cause of a change in the seller’s transaction volume.

• Who: The breaching lessee bears the burden of proving that no lost volume occurred.

• Tool: UCC Section 2-708 addresses seller damages when a buyer does not accept goods or repudiates the contract.