KGM Harvesting Co. v. Fresh Network

California Court of Appeal · Contracts

ContractsUCC buyer remediesCover damagesPrejudgment interestcoverUCC 2712contract pricecost of cover

Facts

Buyer and seller had an agreement under which seller would supply 14 loads of lettuce each week at 9 cents per pound. When lettuce prices rose dramatically in May and June 1991, seller refused to deliver the required quantity at the contract price, and buyer bought substitute lettuce on the open market to satisfy its obligations to Castellini Company. The jury found seller breached and awarded buyer $655,960.22, representing the difference between the contract price and buyer's cover cost, and the trial court offset that amount by $233,000 owed to seller on prior invoices. Buyer had earlier provided seller with a detailed schedule of its substitute purchases and price calculations, though its controller later corrected minor errors and reduced the damages figure.

Issue

When a buyer covers after a seller's breach, may the buyer recover the section 2712 difference between the cover price and the contract price even if the buyer later passes most of the added cost on to downstream parties? Also, were buyer's damages sufficiently certain to support prejudgment interest from August 1, 1991 rather than only from 30 days before trial?

Rule

Under California Uniform Commercial Code section 2712, where a buyer covers by making in good faith and without unreasonable delay any reasonable purchase of substitute goods, the buyer may recover as damages the difference between the cost of cover and the contract price. That measure gives the buyer the benefit of the bargain, and what the buyer later does with that bargain, including passing on increased costs to others, is irrelevant to damages under section 2712. Under Civil Code section 3287(a), prejudgment interest runs from the day damages are certain or capable of being made certain by calculation, so long as the defendant knows the amount owed or can compute it from reasonably available information supplied by the plaintiff.

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Summit Valley Foods, a produce distributor in Denver, contracted to buy 200,000 pounds of onions from Red Mesa Growers at a fixed price of 12 cents per pound. After market prices rose, Red Mesa refused to deliver, and Summit promptly bought comparable onions from other suppliers in Colorado at 19 cents per pound so it could keep serving restaurant accounts; under its downstream agreements, Summit later passed nearly all of the added cost on to those customers.

What is the strongest argument for Summit's damages recovery against Red Mesa?

Explanation. Under the majority rule, a buyer who covers in good faith, without unreasonable delay, and by a reasonable substitute purchase may recover the difference between the cost of cover and the contract price under section 2712. That measure gives the buyer the benefit of the bargain. What the buyer later does with that bargain, including passing added costs on to others, does not reduce section 2712 damages.