Specific performance as a seller remedy for buyer's breach of a sales contract--the availability of judicial purchase orders.

AuthorThatcher, Charles M.

When might a court issue a decree ordering specific performance as a remedy available to a seller for a buyer's breach of a contract for sale of goods? The Sales Article of the Uniform Commercial Code does not acknowledge that specific performance is a remedy available to a seller aggrieved by a buyer's breach. (1) Instead, specific performance is identified as a potential remedy for a buyer of goods aggrieved by a seller's breach. (2) The only analogous remedy available to aggrieved sellers (3) is afforded in an action to recover the price of the goods. (4) Because receipt of the purchase price is the seller's primary objective in concluding a contract for sale of goods, the seller's recovery of damages measured by the price of the goods will be sufficient in most cases to put the aggrieved seller "in as good a position as if the [buyer] had fully performed" (5) when the facts satisfy any of the alternative requirements that U.C.C. section 2709(1)(a) or (b) imposes. (6) The question whether specific performance is a remedy available to aggrieved sellers of goods has received only passing attention in the secondary authorities. (7) This article identifies those situations in which achievement of the remedial ideal (8) is possible only if a court issues a decree ordering specific performance of a buyer's contractual duties on behalf of an aggrieved seller of goods.

Specific performance should be available to an aggrieved seller of goods when none of the seller remedies identified in UCC sections 2-702 to 2-710 will be adequate to protect the expectation interest of the seller. (9) In such cases, the seller should be afforded the opportunity to obtain a decree ordering specific performance of the breaching buyer's duties under the contract or a prohibitory injunction enjoining the buyer from breaching its duties under the contract. The determinative factor in deciding whether specific performance or an injunction against breach would be an appropriate remedy for a seller injured by a buyer's breach is whether an award of one or more of the seller remedies identified in Article 2 "would be adequate to protect the expectation interest of the injured [seller]." (10) If not, then the seller should have a fight to specific performance coextensive with the right that UCC section 2-716(1) affords to buyers in various circumstances. (11)

Among the cases in which specific performance would be an appropriate remedy for an aggrieved seller of goods are those in which the seller is not entitled to bring an action for the price. For example, when a buyer repudiates a long-term output or requirements contract, (12) an action for the price will not always be available to the aggrieved seller as a remedy for breach. (13) An action to recover the price of the contract goods is not available to the seller if the buyer repudiates its remaining duties under such an executory contract before the goods have been accepted, before the risk of their loss has passed to the buyer, (14) and before some or all of the goods have been produced or identified to the contract. (15) Yet that repudiation gives the injured seller an immediate fight to bring an action for breach of the sales contract. (16) When the buyer's repudiation of the whole contract occurs before the seller has begun to produce or acquire some or all of the goods, the seller might not be able to be made whole by obtaining any of the remedies explicitly afforded to aggrieved sellers in sections 2-702 through 2-710 of Article 2. In that event, a court should be willing to order specific performance or to issue an injunction against the buyer's continuing breach as the only remedies that might be capable of securing the seller's unique entitlement under a long-term output or requirements contract. (17)

The courts in two pre-Code cases acknowledged that specific performance or an injunction against breach were remedies available to aggrieved sellers of goods in appropriate circumstances. (18) Considering the Sales Article policy of making the specific performance and an injunction against breach judicial remedies that are available more often than they have been in the past, (19) it is unlikely the drafters intended to reject the holdings in those two pre-Code cases, notwithstanding the absence from Article 2 of any section that explicitly affords to an aggrieved seller a right to specific performance or an injunction against the buyer's breach. On the contrary, those equitable remedies should still be available under supplementary principles of equity (20) whenever they must be granted in order to put "the aggrieved party ... in as good a position as [it would have been in] if the other party had fully performed...." (21) Although specific performance is not listed among the remedies available to an aggrieved seller in UCC section 2-703, (22) no particular provision of Article 2 explicitly displaces the equitable principle that circumstances may make specific performance or an injunction against breach an appropriate remedy for a buyer's breach of a contract for sale of goods. (23)

One of the pre-Code cases supporting the proposition that specific performance might be a remedy available to an aggrieved seller of goods is Allen W. Hinkel Dry Goods Co. v. Wichison Industrial Gas Co. (24) The defendant-buyer in that case entered into a three-year contract to purchase its requirements of gas from a seller. The seller transferred the contract to the plaintiff. The plaintiff then constructed a pipeline and distribution system in order to supply the buyer's requirements under the contract, and the plaintiff made arrangements with affiliated companies to obtain a supply of gas adequate to meet the buyer's requirements during the three-year term of the contract and any extensions of the contract term. The plaintiff-transferee performed its obligations under the contract, but the defendant-buyer repudiated. The plaintiff filed suit and applied for a temporary injunction prohibiting the defendant from breaching the contract pending a trial on the merits of the plaintiff's claim. (25)

The Tenth Circuit Court of Appeals affirmed the district court's order granting Plaintiff a temporary injunction. The plaintiff had no adequate remedy at law. (26) It would have been almost impossible to determine the amount of damages plaintiff would have to recover in order to be compensated for the loss caused by the defendant's repudiation, considering the "nature of the contract [a long-term requirements contract], the lack of a general market for gas, (27) and the uncertainties inherent in the natural gas business." (28) The court noted that

the contract deals with a commodity not readily obtainable or saleable in the general market, the [plaintiff] Gas Company's patrons belong to a limited class, the Gas Company and its affiliates have expended large sums of money to enable it to carry out its contracts to furnish gas, the contract hare [sic] involved had thirty-seven months to run when the order appealed from was made, and the damages for breaches during such future period would be exceedingly difficult of ascertainment. (29) The court also concluded that the plaintiff would suffer "certain and irreparable injury" if a trial on the merits of the claim were to establish that the preliminary injunction had been erroneously withheld, whereas "any injury to the [defendant] ... resulting from the temporary injunction, should the final decree be in its favor, will be fully compensated for by the bond required by the trial court. It follows that the balance of injury as between the parties favored the issuance of the order." (30)

The opinion does not directly support the availability of specific performance as a remedy for a seller of goods. The court distinguished the prohibitory injunction plaintiff ultimately sought from a decree ordering the defendant specifically to perform its duties under the contract:

An injunction against the breach of a contract is a negative decree of specific performance. The power and duty of a court of equity to grant such [an] injunction is broader than its power and duty to grant a decree of specific performance, since an injunction to restrain acts in violation of a lawful contract will be granted, even when specific performance would be denied because of the nature of the contract. (31) Nevertheless, the same factors that persuaded the court to affirm the prohibitory preliminary injunction the trial court had issued also would have supported the issuance of a mandatory preliminary injunction ordering the defendant to continue performing its duties under the contract. (32) Issuance of a prohibitory injunction is an indirect method of getting the breaching party to perform its duties under the contract. (33) Specific enforcement of a decree ordering the defendant to continue purchasing its natural gas requirements from the plaintiff for the duration of the contract term would not have "impose[d]... burdens in enforcement or supervision that are disproportionate to the advantages to be gained from enforcement and to the harm to be suffered from its denial." (34)

In a subsequent pre-Code case, United Fuel Gas Co. v. Columbian Fuel Corp., (35) a seller of natural gas sought and obtained an order of specific performance against a breaching buyer. The parties had concluded a five-year contract for sale at a fixed price of the seller's output of natural gas produced on specified acreages. The court sustained the plaintiff-sellers' claim for specific performance, noting that:

Since plaintiffs have made large expenditures for the purpose of collecting the gas and delivering it to defendant, by way of laying pipe lines, etc., and have placed themselves in a position where they would suffer irreparable damage if defendant should fail to carry out the contracts, there would seem to be no reason why equity should not afford them protection. The jurisdiction to decree...

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