Does a retail dealer who resells goods at the same price after a buyer's repudiation remain entitled under Uniform Commercial Code section 2-708(2) to recover its lost profit and incidental damages, as an offset against the buyer's deposit?

Plaintiffs Neri contracted to buy a new boat of a specified model from defendant, a retail marine dealer, for $12,587.40. They made a $40 deposit, then increased it to $4,250 in exchange for the dealer's agreement to arrange immediate delivery from the manufacturer on a firm-sale basis rather than the original four-to-six-week delivery. Six days after the contract, plaintiffs' lawyer sent a letter rescinding the contract because Neri was about to undergo hospitalization and surgery and could not make any payments. The boat had already been ordered and was delivered to defendant at or before the letter arrived. Defendant refused to refund the deposit. About four months later, defendant sold the boat to another buyer for the same price plaintiffs had agreed to pay. Defendant proved without contradiction that its profit on the contract sale would have been $2,579 and that it incurred $674 in storage, upkeep, finance charges, and insurance while the boat remained unsold. Defendant also sought $1,250 in attorneys' fees.

Plaintiffs sued to recover their deposit. Defendant counterclaimed for breach of contract, demanding $4,250. Special Term granted defendant summary judgment on liability on the counterclaim and directed an assessment of damages. After the assessment trial, the trial court found defendant's lost-profit claim untenable because the boat was resold at the same price and found that defendant had not proved incidental damages. Applying UCC section 2-718(2)(b), it awarded defendant $500 and directed that plaintiffs recover the $3,750 balance of their deposit. The Appellate Division affirmed without opinion. The Court of Appeals granted defendant leave to appeal.

(Gibson, J.)

Yes. A retail dealer is entitled to its lost profit and incidental damages under UCC section 2-708(2), even though it resold the repudiated goods at the contract price, and those damages offset the buyer's right to restitution of the deposit. The courts below erred by applying only the $500 offset in section 2-718(2)(b).

Section 2-718(3)(a) makes the buyer's right to restitution subject to offset to the extent the seller establishes a right to damages under other provisions of Article 2, including section 2-708. Section 2-708(1) measures damages by the difference between market price and contract price. Section 2-708(2) provides that if that measure is inadequate to put the seller in as good a position as performance would have done, the seller recovers its profit, including reasonable overhead, plus incidental damages.

Section 2-708(2) changed prior New York law, which allowed the profit measure only for manufacturers or their agents. The Code extends lost-profit recovery to retail sales of standard-priced goods. A dealer with an unlimited supply of such goods loses a sale when a buyer breaches, because absent the breach it would have made two sales instead of one. Resale at the same price therefore does not make the dealer whole. The statute's reference to credit for "proceeds of resale" concerns salvage or scrap resale under section 2-704 and does not apply to a retail dealer's resale of finished goods. Defendant's $2,579 profit is recoverable.

The seller may also recover incidental damages under section 2-710. The trial court's finding of no incidental damages lacked record support, because the $674 in expenses was proven without objection or contradiction. Attorneys' fees of $1,250 incurred in this action are not protective expenses contemplated by sections 1-106, 2-710, or 2-708(2) and were properly denied.

Plaintiffs are entitled to restitution of $4,250 less a $3,253 offset ($2,579 lost profit plus $674 incidental damages). The Appellate Division order is modified accordingly and affirmed as modified.