CASE 25-3
MIDWEST HATCHERY v. DOORENBOS POULTRY
Court of Appeals of Iowa, 2010
783 N.W.2D 56
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Zimmer, S.J.
Doorenbos Poultry, Inc., is a company that keeps chickens for egg production, and sells the
eggs. The company conducts its business at two barn facilities in Sioux County [Iowa]. One
of the barns can house 112,000 birds and the other has a capacity of 134,000.
The evidence presented at trial reveals that hens generally do not begin laying eggs
until they are seventeen or eighteen weeks old. They reach their peak production at
approximately twenty-six weeks and are generally most productive in laying eggs between
Midwest Hatchery & Poultry Farms, Inc. is a producer and seller of poultry products.
Midwest sells hatch eggs, baby chicks, and started pullets, which are female hens that have
reached the age of laying eggs. In the fall of 2006, Doorenbos Poultry entered into a written
contract with Midwest, to purchase 112,000 pullets (young hens) of the Hy-Line W-36
variety, at eighteen weeks of age, to be delivered on December 28, 2006. The contract listed
a price of $1.27 per pullet, plus the cost of feed from the time of hatching to the date of
delivery. The contract provided, “Deliveries are subject to availability of the Products,
availability of transportation, and availability due to demand from Seller’s other customers.”
The contract also provided, “If Seller breaches this Contract, at Seller’s option,
customer is entitled to either replacement or refund of the price paid by Customer.”
Doorenbos concluded the birds delivered were thirteen to fourteen weeks of age rather than
eighteen weeks. Doorenbos testified he could not cancel the order and return the chickens
because his former flock had already been removed. He explained that the barns in which
the chickens are kept do not have heating. Because the buildings maintain their temperature
from the body heat of the birds, Doorenbos believed the water lines in the barn would have
* * * When this case was tried to the court in late September 2008, Doorenbos Poultry
had kept the pullets delivered by Midwest in production through 117 weeks and was
intending to keep them in production until at least 119 weeks.
On January 20, 2007, Midwest sent Doorenbos Poultry an invoice for $267,916.76,
which represented $146,787.87 for the cost of 115,581 pullets, $112,460.31 for feed, and
$8,668.58 for vaccine. Doorenbos Poultry did not pay for the birds Midwest delivered when
* * * On August 19, 2007, Doorenbos Poultry sent Midwest a check for $184,135.18,
which was what it believed should have been the cost for the younger pullets. Doorenbos
Poultry never returned any chickens to Midwest.
[On September 14, 2007, Midwest filed an action for a money judgment alleging breach
of contract. Doorenbos Poultry responded with a counterclaim alleging breach of contract by
Midwest. The parties waived their right to a jury trial, and their case was tried to the court.
existing flock with eighteen-week-old birds. The court set off the amount of the loss against
the balance Doorenbos Poultry still owed Midwest and entered judgment against Doorenbos
Poultry for $52,048.79 ($83,781.58 minus $31,732.79). Doorenbos Poultry appealed the
decision of the district court.]
* * *
Breach of Contract
* * *
Article 2 of the UCC “relaxes many of the legal formalisms and technicalities of contract
formation associated with the common law of contracts.” [Citation.] Under the UCC, section
[2–607] provides, “The buyer must pay at the contract rate for any goods accepted.” A buyer
accepts goods when the buyer “take[s] or retain[s] them in spite of their nonconformity.”
[Section 2–606(1)(a).] A buyer also accepts goods if the buyer “does any act inconsistent
with the seller’s ownership.” [Section 2–606(1)(c).]
* * *
Limitation of Remedies Provision
* * *
Before we begin our discussion of the limited remedy issue, we believe it is appropriate
to express our agreement with the district court’s conclusion that the acceptance of the
nonconforming goods by Doorenbos Poultry did not preclude its counterclaim for breach of
contract against Midwest. There is no dispute on appeal that Midwest breached the contract
by providing nonconforming chickens. Section [2–607(2)] states, “acceptance does not of
itself impair any other remedy provided by this Article for nonconformity.”
* * *
Clearly, acceptance of the pullets does not preclude Doorenbos Poultry from asserting a
claim based on breach of contract by Midwest. We now turn to the arguments concerning the
limited remedies provision in the parties’ contract.
Under the UCC, the parties to a contract may agree to limit the remedies available if the
seller breaches the contract by providing nonconforming goods, as follows:
[T]he agreement may provide for remedies in addition to or in substitution for those
[UCC Section 2–719(1)(a).] In this case, the parties’ contract specifically provided, “If
Seller breaches this Contract, at Seller’s option, customer is entitled to either replacement or
refund of the price paid by Customer.”
Section [2–719(2)] provides, “Where circumstances cause an exclusive or limited
remedy to fail of its essential purpose, remedy may be had as provided in this chapter.” A
remedy’s essential purpose “is to give to a buyer what the seller promised him.” [Citation.]
The focus of analysis “is not whether the remedy compensates for all damage that occurred,
but that the buyer is provided with the product as seller promised.” [Citations.]
Upon our review of the record, we agree with the district court’s ultimate conclusion that
the limited remedy provision of the parties’ contract failed of its essential purpose. The
chickens were delivered over January 16, 17, and 18, 2007. Doorenbos Poultry notified
Midwest that the pullets were not as specified in the contract within thirty days after
delivery. We agree with the trial court’s conclusion that the reference to a replacement or
refund in the contract contemplates the entire sale with Midwest taking back the entire flock
of birds.
At the time Scott Doorenbos informed Midwest that the pullets delivered were not
eighteen weeks old, it is clear that Doorenbos Poultry was not interested in having the
pullets replaced, and Midwest made no offer to replace them. When it was notified of the
breach, we agree that Midwest could have exercised its option under the contract, taken back
the entire flock, and either replaced the chickens with eighteen week old pullets or refunded
the entire purchase price. The record supports the conclusion that this did not happen
because, as the district court noted, it was plainly impractical.
* * *
Under the circumstance presented here, we conclude the district court did not err in
concluding the limitation of remedies provision in the parties’ contract failed in its essential
purpose. We next consider Doorenbos Poultry’s alternative claim that the trial court
improperly calculated its damages.
Amount of Damages
Because the limitation of remedies provision failed in its essential purpose, a consideration
of damages reverts to section [2–714(1)], which provides for the recovery of damages for
“the loss resulting in the ordinary course of events from the seller’s breach as determined in
any manner which is reasonable.” Thus, any manner that is reasonable may be used to
determine a buyer’s damages for nonconforming goods. [Citation.] Here, the district court
found “a loss of profits would have been an expected loss resulting in the ordinary course of
events from the nonconformity of the pullets delivered by Midwest under § [2–714(1)].”
Under section [2–714(2)], damages are measured by the difference between the value of
the goods at the time of acceptance, and their value if they had been as specified in the
contract, “unless special circumstances show proximate damages of a different amount.” The
court noted that neither party submitted any evidence as to the value of fourteen- or
To Recover Incidental Damages
The buyer may also recover incidental damages, in addition to remedies
such as covering, recovering damages for nondelivery or repudiation, or
recovering damages for breach in regard to accepted goods. Includes
expenses related to inspection, receipt, transportation, care and custody,
and other commercially reasonable charges.
To Recover Consequential Damages
Those damages that result from the goods not meeting the buyer’s
requirements, which were reasonably foreseeable by the seller, or from
defects which proximately caused injury or property damage based on
*** Chapter Outcome ***
Describe the basic types of contractual provisions a”ecting remedies
and the limitations the Uniform Commercial Code imposes upon these provisions.
C. CONTRACTUAL PROVISIONS AFFECTING REMEDIES
Within speci&ed limits, the Code permits the parties to a sales contract to
agree to modify, exclude, or limit the remedies or damages that will be
available for breach of that contract.
Liquidation or Limitation of Damages
Speci&ed damage awards may be provided for in the contract but will be
upheld only if reasonable. Excessive liquidated damages provisions will not
be enforced.
CASE 25-4
COASTAL LEASING CORPORATION v. T-BAR S
CORPORATION
Court of Appeals of North Carolina, 1998
128 N.C.App. 379, 496 S.E.2d 795
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Walker, J.
Plaintiff entered into a lease agreement (lease) with defendant T-Bar S Corporation (T-Bar)
in May of 1992, whereby plaintiff agreed to lease certain cash register equipment
(equipment) to T-Bar. Under the lease, T-Bar agreed to monthly rental payments of $289.13
each for a total of 48 months. Defendants George and Sharon Talbott (appellants) were the
officers of T-Bar and personally guaranteed payment of all amounts due under the lease.
After making 18 of the monthly payments, appellants and T-Bar defaulted on the lease in
December of 1993. On 28 February 1994, plaintiff mailed a certified letter to appellants and
T-Bar, return receipt requested, advising them that the lease was in default and, pursuant to
the terms of the lease, plaintiff was accelerating the remaining payments due under the lease.
address, again return receipt requested. This letter advised appellants and T-Bar that plaintiff
had taken possession of the equipment and was conducting a public sale pursuant to the
terms of the lease. Although the date on the notice of sale stated that the sale was to be held
on 23 March 1994, the sale was actually scheduled to be held on 25 March 1994. This letter
and notice of sale were returned to plaintiffs “unclaimed” on 29 March 1994.
Plaintiffs conducted a public sale of the equipment on 25 March 1994 and no one
appeared on behalf of appellants or T-Bar. There being no other bidders, plaintiff purchased
the equipment at the sale for $2,000.00.
* * *
* * * Since both parties agree that the transaction at issue in this case is not a security
interest, but rather is a lease, Article 2A controls. [Article 9 controls security interests and is
discussed in Chapter 37.]
* * *
In their appeal, appellants contend that the trial court erred by granting summary
judgment in favor of plaintiff because there exists a genuine issue of material fact as to
whether: (1) the liquidated damages clause contained in Paragraph 13 of the lease is
reasonable in light of the then-anticipated harm caused by default; * * *.
As to appellants’ first contention, the official commentary to Article 2A states that “in
recognition of the diversity of the transactions to be governed [and] the sophistication of
many of the parties to these transactions * * *, freedom of contract has been preserved.”
is reasonable in light of the then-anticipated harm caused by the default or other act
or omission.
This liquidated damages provision is more flexible than that provided by its statutory
analogue under Article 2, [UCC §] 2–718.
* * *
“The basic test of the reasonableness of an agreement liquidating damages is whether the
stipulated amount or amount produced by the stipulated formula represents a reasonable
forecast of the probable loss.” [Citation.] However, “no court should strike down a
reasonable liquidated damage agreement based on foresight that has proved on hindsight to
have contained an inaccurate estimation of the probable loss. * * *” [Citation.] And, “the
fact that there is a difference between the actual loss, as determined at or about the time of
the default, and the anticipated loss or stipulated amount or formula, as stipulated at the time
the lease contract was entered into * * *,” does not necessarily mean that the liquidated
[Citation.]
In this case, Paragraph 13 of the lease (the liquidated damages clause) reads as follows:
13. REMEDIES If an event of default shall occur, Lessor may, at its option, at any time
(a) declare the entire amount of unpaid rental for the balance of the term of this lease
immediately due and payable, whereupon Lessee shall become obligated to pay to
Lessor forthwith the total amount of the said rental for the balance of the said term, and
(b) without demand or legal process, enter into the premises where the equipment may
be found and take possession of and remove the Equipment, without liability for suit,
action or other proceeding, and all rights of Lessee in the Equipment so removed shall
terminate absolutely. Lessee hereby waives notice of , or hearing with respect to, such
retaking. Lessor may at its option, use, ship, store, repair or lease all Equipment so
represent an agreed measure of damages and are not to be deemed a forfeiture or penalty. * *
*
* * *
After a careful review, we conclude the liquidated damages clause is a reasonable
estimation of the then-anticipated damages in the event of default because it protects
plaintiff’s expectation interest. The liquidated damages clause places plaintiff in the position
Modification or Limitation of Remedy by Agreement
The sales contract may expressly allow remedies in addition to or instead of
those provided in the Code and may limit or change the measure of
damages recoverable in the event of breach. A remedy provided by the
contract, however, is optional unless it is expressly agreed to be the sole