Firwood Mfg. Co. v. General Tire

Brief Fact Summary.

General Tire, Inc., (Defendant), entered into a contract for the purchase of fifty-five post-cure inflators from Firewood Manufacturing Company, Inc., (Plaintiff). After Defendant breached the contract, Plaintiff brought suit in order to recover the difference between the contract price and the resale price. Defendant appeals the district court judgment for the Plaintiff in the amount of $187,513 in resale damages and $100,476 in interest.

Synopsis of Rule of Law.

Lost use of money is a consequential damage.

Facts.

Plaintiff and Defendant entered into a contract for the sale of fifty-five post-cure inflators. Defendant was unable to purchase thirty-three of the post-cure inflators. Plaintiff looked for alternative buyers. In the meanwhile, Plaintiff filled some of its ongoing orders for spare parts with parts that already had been installed in the thirty-three post-cure inflators intended for Defendant. Although the parts were specially made for Defendant’s contract, they were fungible parts regularly sold in Plaintiff’s spare parts business. Three years passed before Plaintiff was able to sell the thirty-three post-cure inflators. They were sold at a price below the contract price.

Issue.

Whether a seller may substitute fungible goods for those identified to the contract at the time of breach.

Whether Plaintiff’s resale of the goods may not serve as the basis of the damage award because sales three years after a breach are not commercially reasonable.

Whether commercially reasonable charges resulting from the breach include interest on the lost use of money caused by the breach.

Held.

Yes. Plaintiff is not barred from recovery simply because the goods ultimately sold contained parts different than those at the time Defendant breached.

No. We cannot say that the jury was required to find that the resale was commercially unreasonable.

No. Lost use of money constitutes consequential damages.

Discussion.

Plaintiff is not barred from recovery simply because the goods ultimately sold contained parts different than those at the time Defendant breached. The nature of fungible goods suggests no reason why, where a contract involving fungible goods is breached by the buyer, a seller could not recover a deficiency award under U.C.C. Section:2-706 based upon a resale of goods other than those identified to the contract inasmuch as such a sale would not affect or alter the price received for the goods in either a private or public sale. Here, the parts were fungible, and the post-cure inflators into which they were placed were essentially the same as those specially made for Defendant.

Plaintiff’s resale of the goods may serve as the basis of the damage award because under the circumstances three years after a breach is commercially reasonable. Where the resold goods are not those originally identified to the contract, there is a significant risk that the seller, who may perhaps have already disposed of the original goods without suffering any loss, has identified new goods for resale in order to minimize the resale price and thus to maximize damages. Therefore, in this type of case especially, a resale should be made as soon as practicable after a breach. Here, there was no market for the product at the time of the breach. Plaintiff made a continuing good faith effort to locate other purchasers. While a three-year delay is not ideal, U.C.C. remedies are to be liberally construed to ensure that the aggrieved party is put in as good a position as if the other party had fully performed.

Lost use of money constitutes consequential damages. Sellers are entitled to incidental but not consequential damages. Incidental damages include any commercially reasonable charges, expenses or commissions incurred in stopping delivery, in the transportation, care, and custody of goods after the buyer’s breach, in connection with return or resale of the goods or otherwise resulting from the breach. Although New York has interpreted incidental damages broadly to include interest payments attributable to the breach, Michigan defines incidental damages more narrowly. Interest payments on loans taken out to maintain a business when the buyer fails to pay are consequential damages. Even if lost use of money were somehow economically distinguishable form interest paid on a loan, they still constitute consequential damages. Since sellers are not entitled to consequential damages, Plaintiff was not entitled to receive interest as a measure of the damage award. Nevertheless, Plaintiff was e
ntitled to claim statutory interest from the date on which suit was filed under Michigan Laws even if as a seller, it was not entitled to interest as a measure of damages under the U.C.C.