Abstract
The time has come to address ambiguity in the interpretation of the Uniform Commercial Code (“UCC”) provisions governing the return of deposits to defaulting buyers found in subsections 2-718(2) & (3) of Article 2 governing the sale of goods.
In brief, the concern is that ambiguity in the drafting of UCC s. 2-718(2) & (3) allows courts to understate the restitution amount returnable to a defaulting buyer who made a deposit on a contract for the sale of goods. This mistaken interpretation allows sellers to retain a premium or penalty, in addition to compensation for actual damages. Recent case law creates the risk that this “penalty” interpretation becomes the norm, going against the famous case of Neri v. Retail Marine Corporation. Even though the maximum dollar amount of the penalty is, at most, $500 in any one case, the “penalty” interpretation raises social justice concerns.
Empirical studies show that many Americans are unable to pay an unexpected $500 debt. Twenty five percent of American families have less than $400 in savings. More broadly, in 2017, 40% of adults report that they or their families had trouble meeting at least one basic need for food, health care, housing or utilities. Though $500 may appear small in a legal setting (given myriad court costs, legal fees and expenses associated with any case), social science research shows that the loss of this amount would create real economic hardship for many individuals and families. Given this economic reality, stewardship of the law requires that sellers not be overcompensated for their losses unless the parties have otherwise agreed to an enforceable liquidated damages clause.
The penalty result is not required by either case law or legislative history. The problem arises because of two system design failures in the structure of the UCC. The failure of the drafters to foresee that the UCC would be used like a civil code rather than a common law code; and, the failure to have a procedure appropriate to make needed amendments outside of the grand codificatory act contemplated by Karl Llewellyn.
The article explains why some action must be taken even though amendments to Article 2 which would have corrected the problem has failed.