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Brief Fact Summary.
Defendant entered into a contract with Plaintiff whereby Defendant would sell 14 loads of lettuce to Plaintiff each week. Plaintiff sued Defendant for breach of contract after Defendant refused to sell the lettuce to Plaintiff when the price of lettuce rose dramatically. The trial court awarded damages in the amount of the difference between the purchase price and the contract price, minus the value of the lettuce delivered under the contract. Defendant appealed.
Synopsis of Rule of Law.
A buyer may recover from a breaching seller as damages the difference between the cost of cover and the contract price, and if the buyer is unable to cover or chooses not to cover, the measure of damages is the difference between the market price and the contract price.
The basic object of damages is compensation, and in the law of contracts the theory is that the party injured by a breach should receive as nearly as possible the equivalent of the benefits of performance.
View Full Point of Law
KGM Harvesting Co. (Defendant) entered into a contract with Fresh Network (Plaintiff) whereby Defendant would sell 14 loads of lettuce to Plaintiff each week. When the price of lettuce rose dramatically, Defendant refused to sell the lettuce to Plaintiff and sold at market price to third parties. Plaintiff refused to pay for the lettuce it had already received and purchased lettuce on the open market in order to fulfill its obligations to third parties. Plaintiff sued for breach of contract. The trial court awarded damages in the amount of the difference between the purchase price and the contract price, minus the value of the lettuce delivered under the contract. Defendant appealed.
Issue.
Whether a seller who breaches a contract because of a rise in market prices is liable to the buyer for the buyer’s costs of replacing the undelivered goods.
Held.
Yes. The trial court’s ruling is affirmed. A buyer may recover from a breaching seller as damages the difference between the cost of cover and the contract price, and if the buyer is unable to cover or chooses not to cover, the measure of damages is the difference between the market price and the contract price.
Discussion.
A buyer can cover by making in good faith and without unreasonable delay any reasonable purchase of goods in substitution for those due from the seller. In that case, the buyer may recover from the seller as damages the difference between the cost of cover and the contract price. If the buyer is unable to cover or chooses not to cover, the measure of damages is the difference between the market price and the contract price. Defendant contends that, because Plaintiff eventually was able to pass on the extra expenses occasioned by seller's breach on the open market, the court should not allow the buyer to obtain a "windfall." The basic object of damages for breach of contract is compensation: that the party injured by breach should receive as nearly as possible the equivalent of the benefits of performance. Defendant was aware that if it failed to provide Plaintiff with the required 14 loads of lettuce, Plaintiff would need to obtain replacement lettuce elsewhere or would itself be in breach of its contracts with third parties. Purchasing replacement lettuce to continue its business did not place Plaintiff in as good a position as if Defendant had fully performed because Plaintiff paid more than the contract price for the replacement lettuce. Only by reimbursing Plaintiff for the additional costs above the contract price could it truly receive the benefit of the bargain.