Can a retail dealer recover lost profits and incidental damages when a buyer repudiates a contract governed by the Uniform Commercial Code?

The plaintiffs entered into a contract with the defendant dealer to purchase a new boat for $12,587.40, providing a deposit of $4,250. Shortly thereafter, the plaintiffs' attorney sent a letter to rescind the contract, citing Mr. Neri's impending hospitalization and surgery as the reason. However, by this time, the boat had already been ordered and delivered to the defendant. The defendant refused to return the deposit, prompting the plaintiffs to file a lawsuit. In response, the defendant filed a counterclaim for breach of contract.

The boat was subsequently sold to another buyer for the same price as the original contract. The defendant provided evidence that its profit from the sale would have been $2,579. Additionally, the defendant incurred $674 in incidental expenses during the period the boat remained unsold. These facts form the basis of the dispute between the parties regarding the deposit and potential damages resulting from the attempted contract rescission.

The plaintiffs initiated a lawsuit to recover their deposit. In response, the defendant filed a counterclaim for breach of contract. The court granted summary judgment in favor of the defendant on the issue of liability. Subsequently, Special Term ordered an assessment of damages. At trial, the court awarded the defendant $500 and directed that $3,750 be returned to the plaintiffs. The Appellate Division affirmed this decision. Following the appellate court's ruling, the case was brought before the current court on appeal.

(Gibson, J.)

Yes. A retail dealer can recover lost profits and incidental damages when a buyer repudiates a contract governed by the Uniform Commercial Code. The Uniform Commercial Code § 2-708(2) explicitly allows for the recovery of lost profits in retail sales cases where the measure of damages under § 2-708(1) is inadequate to put the seller in as good a position as performance would have. This provision represents a significant change from prior law, recognizing the unique position of retail sellers. The lost profit recovery is not limited to the contract price minus market price formula, but extends to the full profit margin the seller would have realized from the sale. Additionally, incidental damages are recoverable to compensate the seller for expenses reasonably incurred as a result of the buyer's breach. These damages may include costs associated with storing, shipping, or reselling the goods. The 'due credit for payments or proceeds of resale' provision in § 2-708(2) does not apply to retail sales contracts, as it would unfairly reduce the seller's recovery in situations where the goods are typically resold in the ordinary course of business. This interpretation ensures that retail sellers are fully compensated for their losses when buyers breach contracts, aligning with the UCC's underlying principle of making the non-breaching party whole. However, certain limitations exist. Attorney's fees, for instance, are not considered recoverable incidental damages under this provision, as they fall outside the scope of protective expenses contemplated by the statute.