Young v. Frank’s Nursery & Crafts, Inc. - 58 Ohio St. 3d 242, 569 N.E.2d 1034 (1991)

Rule:

Where a buyer commits an anticipatory breach of a contract and the seller proceeds under U.C.C. § 2-704(2), Ohio Rev. Code Ann. § 1302.78(B), and U.C.C. § 2-708, Ohio Rev. Code Ann. § 1302.82, for his remedy, the burden of proving that the seller acted in a commercially unreasonable fashion in deciding to cease manufacturing is on the buyer. U.C.C. § 2-704, cmt. 2. Mich. Comp. Laws Ann. § 440.2704 deals with the seller's rights and obligations regarding unidentified and incomplete goods. 

Facts:

Plaintiff-appellant, William G. Young, had been cutting evergreen boughs on Michigan farms and selling them in the Toledo area since 1971. In 1975, after he had built up a customer base of twenty-five to thirty, Young began selling boughs to Frank's Nursery & Crafts, Inc. From 1976 through 1987, Young dealt exclusively with Frank's. Young's sales to Frank's had grown from $ 10,224 that first year to an order for $ 238,332.85 issued in early 1987 that is the subject of this case. After receiving the order, Young began preparations to carry it out, even though the boughs were not to be cut until the following fall. On June 30, 1987, Frank's mailed a new purchase order to Young, reducing its requirements to about seventy tons. At trial, Young estimated that the reduction had the effect of cutting the contract price from the original $ 238,332.85 to under $ 60,000. Young subsequently called three other evergreen bough buyers and two brokers about purchasing some of the material that Frank's no longer wanted. Those attempts to find other buyers were fruitless because other potential buyers already had their fall orders set by the time Young inquired in July. He did cut enough material to fill Frank's reduced order. On October 7, 1987, Young filed a breach of contract action against Frank's in Lucas County Common Pleas Court. Prior to the start of trial on November 7, 1988, the defendant admitted liability for breach of contract, leaving only the issue of damages. The jury returned a verdict of $ 132,902 in favor of Young and Frank's appealed.

Issue:

Does Frank’s have the burden to prove that Young’s decision to stop manufacture was commercially reasonable?

Answer:

Yes.

Conclusion:

At the time of the breach, in July 1987, Young had not begun to assemble the goods that he had contracted to sell to Frank's. M.C.L.A. 440.2703 ( R.C. 1302.77), "Buyer's wrongful rejection, revocation of acceptance, or nonpayment: remedies of seller," listed the seller's principal remedies under the code. Because the goods in this instance were unidentified to the contract, M.C.L.A. 440.2703(c) directs the seller to the next section, M.C.L.A. 440.2704 ( R.C. 1302.78), for his remedy.  M.C.L.A. 440.2704 (2), provides: "Where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner." Commentators provided that the official comments to the U.C.C. "make clear that the burden is on the buyer to prove that the seller failed to use reasonable commercial judgment. They viewed the entire section as placing the burden on the breaching buyer, positing that to read 2-704 as consistent with the general rules of mitigation would mean that the seller must exercise commercially reasonable judgment not only when he decides to complete, but also when he decides not to.