924 F.2d 709 (7th Cir. 1991)
In February 1984, R.E. Davis Chemical Corporation, an Illinois business, entered into a written agreement with Diasonics, Incorporated, a Delaware corporation that manufactures and markets medical diagnostic equipment, to purchase a .35 tesla nuclear magnetic resonance instrument for $1,500,000.1 Davis paid a $300,000 deposit.2
The contract provided that upon full payment Davis would receive a $225,000 research grant.3 It included an option to upgrade the instrument to a high-field/spectroscopy system by June 1, 1985, for an additional $700,000.4
Davis failed to take delivery of the MRI, breaching the contract.5 Diasonics resold the MRI to a third party at the same contract price.6
When Diasonics refused to return the deposit, Davis sued under section 2-718(2) of the Uniform Commercial Code seeking its return.7 Diasonics counterclaimed for lost profits under section 2-708(2), claiming it was a lost volume seller.8
The district court granted summary judgment to Davis.9 On appeal, the Seventh Circuit reversed and remanded with instructions for the district court to calculate damages under 2-708(2) if Diasonics established it had the capacity to make both sales, that it would have been profitable, and that it probably would have made the second sale absent the breach.10
On remand, after a three-day bench trial, the district court awarded Diasonics $153,050 in damages, representing $453,050 in lost profits minus the $300,000 deposit.11 The court had granted Diasonics' motion in limine to exclude evidence of additional expenses Diasonics would have incurred if Davis had exercised the upgrade option.12
Davis appealed, challenging the failure to require identification of the specific resale buyer, the reliability of Diasonics' damage calculations, the denial of a $225,000 credit for the research grant, and the exclusion of evidence regarding the upgrade option.13
Whether a seller must precisely identify the specific buyer to whom it resold the goods to qualify as a lost volume seller?14
Under UCC section 2-708(2) a lost volume seller recovers lost profits upon proving three elements: the seller had capacity to make an additional sale, the additional sale would have been profitable, and the seller probably would have made the additional sale but for the breach.15 When the goods are interchangeable generic units the seller need not identify the precise resale buyer.16
No. Diasonics proved it possessed capacity to manufacture additional MRIs and actively solicited every possible customer in 1984 through its sales force pursuing all leads in a competitive market.17 The MRIs were generic and interchangeable so the inability to name the exact resale buyer did not defeat lost volume status.18 Davis presented no contrary evidence and the district court finding that Diasonics probably would have made the additional sale was not clearly erroneous.19
A seller need not precisely identify the specific resale buyer when the goods are interchangeable and the three lost volume factors are satisfied by other evidence.20
Whether Diasonics' damage calculations were sufficiently reliable to support an award of lost profits?21
Yes. Diasonics presented damage figures that the district court accepted after weighing the credibility of the parties' accountants during the three day bench trial.24 Davis attacked the use of average costs and alleged inconsistencies but the district court rejected Davis's alternative figures.25 The acceptance of Diasonics's computations was not clearly unreasonable and therefore stands.26
Diasonics's damage calculations were sufficiently reliable to support the lost profits award.27
Whether Davis was entitled to a $225,000 credit against damages for the research grant provided in the contract?28
No. The contract conditioned the grant on full payment and program approval neither of which occurred yet the district court was required to determine whether the grant was genuine research valuable to Diasonics or merely a rebate.31 Because that factual inquiry was not completed Davis was not entitled to the credit on the present record.32
Davis was not entitled to the $225,000 credit without a factual determination whether the research grant was a genuine exchange or a disguised discount.33
Whether the district court erred by excluding evidence of the additional expenses Diasonics would have incurred if Davis had exercised its upgrade option?34
Yes. Davis introduced evidence that it designed the MRI building for the higher field system and that Diasonics initially treated the upgrade as an enforceable contract term.37 The district court excluded the evidence solely because Davis repudiated before the option date without examining whether the upgrade was likely to be exercised.38 Upon remand, the district court should determine the probability that the option would have been exercised by examining the following non-exhaustive set of factors.39
The district court erred by excluding the upgrade evidence without determining whether the option was likely to be exercised.40