Missouri Furnace v. Cochran
8 F. 463 (C.C.W.D.Pa. 1881)

  • Cochran signed a contract to send 36k tons of coke to Missouri Furnace at $1.20 a ton, 2k tons per month.
    • Cochran only delivered about 4k tons and then cancelled the contract.
  • In response, Missouri Furnace made a long-term contract with another company to deliver the remaining 29k tons of coke at $4.00 a ton over the course of the rest of the year.
    • Missouri Furnace’s problem was that the price of coke went up and down a lot. It was only at $1.20 when the signed the contract with Cochran, but on the day they signed with the other company, it had jumped to $4.00 a ton.
      • $4.00 a ton was considerably higher than the typical market rate.
  • Missouri Furnace sued Cochrane to recover the difference ($4.00-$1.20 = $2.80 per ton).
  • The Trial Court found for Cochran. Missouri Furnace appealed.
    • The Trial Court agreed that Cochran was liable for damages, but that found that the damages should be “the difference between the contract price (what Cochran was the receive) and the market price of standard coke at the price of delivery, at the several dates when the deliveries should have been made under the contract.”
      • This meant that they figured out average price of coke was, and award damages based on (Average Price) – $1.20, not $4.00 – $1.20.
      • The Court noted that Missouri Furnace did act in good faith in making the $4 a ton contract, even if it wasn’t a good deal in the long term. There was no attempt to run up damages. But, in the view of the Court, Missouri Furnace is stuck with the risk of price fluctuations.
  • The Appellate Court affirmed.
    • The Appellate Court found that the damages should be calculated as the difference between the contract price and the market value of the article at the time is should be delivered.
      • This means that the “time of the breach” is technically the “time when delivery should have been made.” Where delivery is required to be in installments, the measure of damages shall be estimated by the value at the time each delivery should have been made.
    • The issue here is whether Missouri Furnace should have signed a long term contract at that high rate, or realized that the rate was probably going to drop and therefore should have signed only a short term deal and bought more later, when the price had dropped. The 2nd contract was at Missouri Furnace’s own risk and damages cannot be blamed on the 1st contract.
  • This Court case was poorly decided, because if the spot price had gone higher than $4 a ton, the Court would have not awarded the spot-contract price, it would most likely have capped damages at $2.80 per ton. In this case, the court has put the entire risk on the plaintiff!
  • This case was decided prior to the UCC, so it would never be cited in a new case.
    • UCC §2-712 goes against the decision in this case.
      • In the UCC, all the Missouri Furnace would have been required to do while covering is make a commercially reasonable purchase, which they did. As long as the purchases are made in good faith, then the defendant is liable for the difference between the cover price and the contract price.
    • This commercially reasonable standard doesn’t fly in other legal situations. For example, if you get caught speeding, you can’t use the argument that speeding is the way most people drive.