Contracts

Brief

R.E. Davis Chemical Corp v. Diasonics, Inc.

Procedural History:

• District Court denies Diasonics motion for summary judgment.
• District Court grants R.E. summary judgment motion.
• Diasonic appeals these rulings.
• Diasonic also appeals the order dismissing its third-party complaint against Dobbin and Valvassori.
• Affirmed the dismissal of the third-party complaint.
• Reversed the grant of summary judgment in favor of Davis and remand for further proceedings.

Facts:

• Diasonics manufactures and sells medical diagnostic equipment.
• Davis contracted to purchase a piece of medical diagnostic equipment from Diasonics.
• February 23, 1984 – Davis and Diasonics entered into a contract.
• Davis paid $300,000 as a deposit on February 29, 1984.
• Prior to entering into this agreement, Davis entered into a contract with Dobbin and Valvassori to establish a medical facility where the equipment was to be used.
• Dobbin and Vlavassori breached their contract with Davis.
• Davis then breached his contract with Diasonics and refused to take delivery.
• Diasonics later resold the equipment to a third party for the same price at which it would have sold to Davis.
• Davis is suing Diasonics for restitution of its $300,000 down payment under section 2-718(2) of the UCC.
• Diasonics thus counterclaimed.
  • Diasonics felt it was entitled to an offset under section 2-718(3).
  • Diasonics is claiming it is a ‘lost volume seller’ and it lost profit from one sale when Davis breached the contract.
  • Diasonics believes that in order to be put in the position it would have been in had the contract been performed, it was entitled to recover its lost profit on its contract under section 2-708(s) of the UCC.
• Diasonics also filed a third-party complaint against Dobbin and Valvassori claiming it tortiously interfered with the Davis contract.
  • This complaint was dismissed however for failure to state a claim upon which relief could be granted.

Issue:

• What is the correct measure of damages Diasonic is entitled to?

Holding:

• Under section 2-708(2).

Reasoning:

• Under section 2-708(2)(b), Davis is entitled to the return of its down payment less $500.
• Diasonic can establish a right to recover damages under any other provision of Article 2 of the UCC.
• Four available provisions:
  • 1. 2-706 – Contract price less resale price.
  • 2. 2-708(1) – Contract price less market price.
  • 3. 2-708(2) – Profit
  • 4. 2-709 – Price.
• No particular language as to what calculation is appropriate and when and therefore it is a case by case decision.
• Diasonic claiming that it is a lost volume seller still means they must still establish that a lost sale was present.
• Diasonic must therefore prove 2 things:
  • Must establish not only that it had the capacity to produce the breached unit in addition to the unit resold, but also that it would have been profitable for it to have produced and sold both.
• Lost Volume Seller Defined: One that has a predictable and finite number of customers and that has the capacity either to sell to all new buyers or to make the one additional sale represented by the resale after the breach.
• The case is remanded to have Diasonic show not only that it had the capacity to make the sale to Davis as well as the sale to the resale buyer, but also that it would have been profitable for it to make both sales.