Read Case 16-3 inChapter 16of our textbook, Stern Oil. v. Brown, 908 N.W.2d 144 (S. Dak. 2018). Consider the Critical Thinking questions following the case; then, answer the Ethical Decision Making questions for this discussion thread.

CASE 16-3 STERN OIL CO. v. BROWN SUPREME COURT OF SOUTH DAKOTA 908 N.W.2d 144 (2018) FACTS: Stern Oil is a fuel and petroleum distributor based in Freeman operated by Scott and Staci Stern and Scott's father, Gillas. The business supplies fuel at locations across the Midwest. Brown is a businessman from Gettysburg. Brown operates two convenience stores in North Sioux City, South Dakota: Goode to Go and Freeway Mobil. In 2005, Brown and Stern Oil entered into two ten-year Motor Fuel Supply Agreements (MFSAs) for Stern Oil to supply ExxonMobil branded fuel to Brown to sell at his two convenience stores. The MFSAs required Stern Oil to sell and deliver up to a contractually determined "Maximum Annual Volume" of fuel to Brown. Brown was obligated to purchase at least 75 percent of that amount annually. Approximately a year and a half into the ten-year agreements, Brown stopped purchasing fuel from Stern Oil. Stern Oil sued Brown for breach of contract. Brown counterclaimed and asserted that Stern Oil fraudulently induced him to enter into the MFSAs by verbally guaranteeing Brown a five-cent profiton each gallon of fuel sold at his convenience stores. Brown also asserted defenses to the validity of the MFSAs. The circuit court granted Stern Oil's motion for summary judgment on its claims for breach of contract and on Brown's fraud claims. The parties waived a jury on the issue of damages, and the case proceeded to a bench trial in October 2009 and January 2010. The circuit court awarded Stern Oil lost profits in the amount of $925,317. ISSUE: Whether the circuit court erred in instructing the jury that Stern Oil's damages had to be foreseeable to Brown. REASONING: Stern Oil argues that lost profits resulting from an immediate payment discount given by ExxonMobil were recoverable as direct damages and not as consequential damages, and as such, the damages were not subject to a foreseeability requirement. Brown contends that any profits arising from the discount received from ExxonMobil were consequential to the breach of the MFSAs because they were based upon a third-party contractual agreement between Stern Oil and ExxonMobil. Brown was not a party to that agreement and claimed he was not aware of its terms. He maintains the jury was properly instructed. In the alternative, Brown claims that if an error occurred, it was harmless. Because Stern Oil established the factual basis to seek lost profits as the alternative measure of damages, the remaining question Page is whether the circuit court erred in instructing the jury on consequential damages and the foreseeability of Stern Oil's lost profits to Bro at the time of contracting. The UCC does not distinguish between direct and consequential damages for lost profits claimed by a seller. . Where the UCC is silent, SDCL 57A-1-103 allows other "principles of law and equity" to supplement the UCC's provisions. Because the UCC does not address when lost profits are direct or consequential, we apply general contract law in determining this question. This Court has stated that "the ultimate purpose behind allowance of damages for breach of contract is to place the injured party in the position he or she would have occupied if the contract had been performed, or to 'make the injured party whole." The amount of recover may not exceed the amount the plaintiff would have gained if the contract had been fully performed. This Court has allowed a party to recover lost profits for breach of contract. In general, to prove damages for lost profit, a plaintiff must establish "a reasonable relationship between the method used to calculate damages and the amount claimed." Damages must also be "reasonably certain and not speculativ Id. Further, we have required that damages be a direct consequence of the breach of contract and reasonably within the contemplation o the parties at the time of making the contract. To this end, "I consequential damages must be reasonably foreseeable by the breaching p at the time of contracting." We have not, however, had an occasion to address the distinction between lost profits as direct or consequenti damages. A number of courts have wrestled with this question. DECISION AND REMEDY: The lost profits claimed by Stern Oil are direct damages, not consequential damages. We require a n breaching party to show that consequential damages were foreseeable to the breaching party at the time of the contracting. In contrast, direct damages for breach of contract do not have an element of foreseeability because they are, by their very nature, foreseeable by the parties at the time of contracting. Because the lost profit damages flowed directly from the MFSAs, Stern Oil d not have an obligation to show foreseeability. SIGNIFICANCE OF THE CASE: This case illustrates the limits to which damages may be assessed against a breaching party. Clearly lost profits are not just consequential but are direct and foreseeable damages under any kind of breach and foreseeability need not be proven by the plaintiff.foreseeable by the parties at the time of contracting. Because the lost profit damages flowed directly from the MFSAs, Stern Oil did not have an obligation to show foreseeability. SIGNIFICANCE OF THE CASE: This case illustrates the limits to which damages may be assessed against a breaching party. Clearly lost profits are not just consequential but are direct and foreseeable damages under any kind of breach and foreseeability need not be proven by the plaintiff. CRITICAL THINKING Can you envision a situation where lost profits are not foreseeable? What if the buyer is not an obvious merchant? A home baker orders a supply of cake ingredients for her home bakery business. The seller fails to deliver the correct supplies and the home baker loses a number of lucrative wedding cake customers. The supplier had no idea it was dealing with a commercial baker but thought the delivery was a home delivery. Should lost profits be recoverable?

Following up on the critical thinking issue above, should it make a difference at all whether a buyer or seller is a merchant or not. Should a merchant beheld to a higher standard? If the seller above was a neighbor from whom our home baker were buying supplies from and who subsequently breached, should the neighbor be liable for lost profits?