A fundamental principle of contract law is that a party that accepts the delivery of nonconforming goods must pay the full contract price. That’s also the result under Iowa’s version of the Uniform Commercial Code. Farmers that are merchants are generally subject to the Uniform Commercial Code.
In this case, the buyer (an egg producer) and the seller (a laying hen retailer) contracted for the purchase of 112,000 pullets (young hens) at 18 weeks of age to be delivered in December of 2006. The contract provided that “deliveries are subject to availability” and upon the seller’s breach of the contract, the buyer was entitled to replacement or refund of the pullets. Before the specified delivery date, the seller contacted the buyer and informed him that they wouldn’t be able to deliver the pullets. The buyer agreed to the delay and a few weeks later the seller delivered the pullets. The only problem was that the pullets were 4-5 weeks younger than the agreed upon 18 weeks. The buyer accepted the new flock of pullets because he had already sold the older hens, but no eggs were produced as the pullets matured. The seller sent the buyer an invoice for the full contract price. The buyer did not pay, but did inform the seller within 30 days of delivery (as specified in the contract) that the chickens were too young and they had sustained a loss. Six months later, the parties had still not reached an agreement as to payment and the sellers threatened to reclaim the chickens. The buyer then paid the seller a reduced amount and did not return the chickens.
The seller sued for the full contract price. The trial court determined that the UCC applied to the contract and that the buyer was liable for the full contract price because the buyer had accepted the nonconforming goods. But, the court found that liability for the full contract price should be offset by the loss the buyer sustained because of the delivery of the immature chickens.
The buyer appealed the trial court’s decision, on the basis that the sellers were barred from recovery under the contract because they failed to perform a material condition. However, the court noted that the UCC specifies that if a buyer accepts goods, the buyer takes them “in spite of their nonconformity” and must pay the contract rate. However, the appellate court did agree that the buyers were entitled to compensation for their losses. Replacing the entire flock would have been impractical at the time of delivery. Loss of profits is an appropriate remedy for a buyer in this position. Midwest Hatchery & Poultry Farms, Inc. v. Doorenbos Poultry, Inc.,783 N.W.2d 56 (Iowa Ct. App. 2010).