Master the lost volume seller doctrine and UCC § 2-708(2) lost profits damages with this foundational case on seller's remedies.
Neri v. Retail Marine Corp. (1972) is the leading case on lost profits damages under UCC § 2-708(2), establishing the "lost volume seller" doctrine. The case addresses when a seller who resells goods after a buyer's breach can still recover lost profits from the breaching buyer.
This New York Court of Appeals decision is essential for understanding seller's remedies in contracts for the sale of goods and the concept that sellers with unlimited inventory can be compensated for each lost sale, not just the difference between contract and resale price.
Neri v. Retail Marine Corp., 30 N.Y.2d 393, 285 N.E.2d 311 (1972)
Neri contracted to buy a boat from Retail Marine Corporation for $12,587.40. He made a $40 deposit but later repudiated the contract before taking delivery. Retail Marine kept the $40 as a deposit but also sued for lost profits of $2,579, plus incidental damages of $674. Retail Marine eventually sold the same boat to another buyer for the same price four months later. Neri argued that since the boat was resold for the same price, Retail Marine suffered no damages beyond the deposit.
Can a seller recover lost profits under UCC § 2-708(2) when the goods are resold at the same price, particularly when the seller is a "lost volume seller" who could have made both sales?
Under UCC § 2-708(2), when the resale remedy under § 2-706 is inadequate to put the seller in as good a position as performance would have, the seller may recover lost profits plus incidental damages, with credit for payments made by the buyer. A "lost volume seller" - one with unlimited inventory who could have made both the breached sale and the substitute sale - can recover lost profits even when reselling for the same price.
The court held that Retail Marine could recover lost profits under § 2-708(2) because it was a lost volume seller. Even though the boat was resold for the same price, Retail Marine lost one sale and thus one profit. The court awarded damages of $2,579 in lost profits plus $674 in incidental damages, minus the $40 deposit retained.
The court reasoned that UCC § 2-708(2) is designed to provide adequate compensation when other remedies fail to do so. Here, the contract-market differential remedy would yield zero damages, but this would not fairly compensate the seller. Retail Marine had an unlimited supply of boats - it could have sold to both Neri and the subsequent buyer. Therefore, Retail Marine lost the profit from one sale due to the breach. The court emphasized that § 2-708(2)'s purpose is to put the seller in as good a position as performance would have, which requires awarding lost profits to lost volume sellers. The subsequent resale was irrelevant because it would have occurred anyway, independent of the breach.
Neri established the lost volume seller doctrine in American law, recognizing that sellers with unlimited or substantial inventory suffer real economic loss even when goods are resold at the same price. The case is foundational for understanding UCC § 2-708(2) and seller's remedies generally. It demonstrates that the goal of contract damages is to put the injured party in the position they would have been in had the contract been performed, which for lost volume sellers means recovering the lost profit from the breached transaction.
A lost volume seller is a seller with sufficient inventory or capacity to have made both the breached sale and any substitute sale. Because they could have made both sales, the breach causes them to lose one unit of profit, even if they resell at the same price.
The contract-market differential (§ 2-708(1)) would yield zero damages because the resale price equaled the contract price. But this wouldn't compensate the seller for the lost profit, which is why § 2-708(2) provides an alternative remedy for situations where the standard measures are inadequate.
The seller must prove they had the capacity to make both sales - that is, they had sufficient inventory or could have obtained the goods to fulfill both transactions. If the seller would have had to choose between buyers, they are not a lost volume seller.
The case shows that mitigation doesn't always reduce damages. For lost volume sellers, the resale is not truly a mitigation because it would have occurred anyway. The breach still causes the loss of one profit, which the seller is entitled to recover.
Neri v. Retail Marine Corp. remains the leading case on lost volume sellers and UCC § 2-708(2) lost profits damages. The case teaches important principles about seller's remedies and the goals of contract damages - to put the injured party in the position they would have been in had the contract been performed.
Understanding Neri is essential for law students studying the UCC and seller's remedies, as it establishes fundamental principles about when lost profits are appropriate and how courts calculate damages to achieve full compensation for breach.