C.I.C. Corp. v. Ragtime, Inc.

319 N.J. Super. 662, 726 A.2d 316 (App. Div. 1999)
  • Opinion Date: April 1, 1999

CONTRACTS; DAMAGES—A seller is not obligated to mitigate its damages by selling refused goods if it could have entered into two sales but for the first customer’s breach of contract in refusing the goods.

A vending machine company contracted with owners of various types of retail establishments and placed a variety of coin-operated machines on the premises of those establishments. It kept the machines stocked and serviced them on an on-call basis. The coins were removed by its collectors on a bi-weekly basis and the revenue was shared by the vending company and the owner of the premises in accordance with the terms of the agreement. A controversy arose out of one of these contracts between the vending company and a go-go bar. The agreement covered a cigarette machine, a juke box, a pool table, and a pin ball machine, all of which had been on the bar’s premises for some time. Pursuant to the terms of the particular agreement, the vending company loaned the bar $3,500 through an advance on a portion of the future revenues. The loan carried interest. About a month later, the bar repaid the loan and the four machines were removed. The bar contended that it was dissatisfied with the vending company’s servicing of the machines and when it so advised the vending company, the company agreed to rescind the contract and remove the machines provided that the loan was repaid. The vending company, on the other hand, asserted that it had agreed to temporarily remove the machines while the bar was to be renovated into a family restaurant. The bar was never renovated into a family restaurant and the bar owner purchased and installed its own machines. A jury had no difficulty in finding that the bar had breached the agreement. However, it did have difficulty in determining damages. The vending company, by using its records for the period of time before the machines were removed, calculated its loss as $700 per month for the 59 remaining months of the lease. The bar did not dispute the calculations, but asserted that the vending company was required to mitigate damages and had failed to do so. The lower court held that the vending company was required to mitigate damages. The Appellate Division disagreed. According to the Court, this was clearly a “lost volume” situation. “As explained by Restatement (Second) Contracts sec. 347 comment f (1981): Whether a subsequent transaction is a substitute for the broken contracts sometimes raises difficult questions of fact. If the injured party could and would have entered into the subsequent contract, even if the contract had not been broken and could have had the benefit of both, he can be said to have ‘lost volume’ and the subsequent transaction is not a substitute for the broken contract.” Comment d (1981) states that “[t]he mere fact that an injured party can make arrangements for the disposition of the goods and services he was to supply under the contract does not necessarily mean that by doing so, he will avoid loss. If he would have entered into both transactions but for the breach, he has ‘lost volume’ as a result of the breach.” New Jersey recognizes the “lost volume” rule. In reviewing the record below, the Appellate Division thought it plain that “the proofs here have supported a jury finding that plaintiff had a warehouse-full of a variety of coin-machines and could have placed as many as it could have found customers for. Thus, even if it eventually placed with another customer the machines removed from defendant’s premises, it still would have lost the benefit of its bargain with defendant since, in that case, it would have made two deals, not just the second.” As a result of its finding, the Court remanded the matter for a new trial on damages only.