KGM Harvesting Co. v. Fresh Network

Page 758

Court and Date: Court of Appeal of California, Sixth Appellate District – 1995

Parties: P= KGM Harvesting, producer and seller of lettuce

D= Fresh Network – buyer of lettuce

Facts: Fresh Network had a standing written contract with KGM for the weekly purchase of 14 loads of lettuce (approximately 616,000 pounds at 9 cents per pound = approx. cost of $55,440 per week). Contract had been in force with a few modifications since 1989. In May and June 1991 when the price of lettuce increased seller refused to sell to buyer the weekly 14 loads and buyer had to go out and purchase the lettuce at a higher price from someone else. Fresh Network angry at KGM’s breach refused to pay KGM for some lettuce already received.

What Happened? KGM then sued buyer for non-payment and Fresh Network cross-complained for the breach requesting damages for the additional amount it had to spend to attain the lettuce.

At trial level – Fresh Network won – and it’s award was decreased by the amount it owed KGM for the lettuce it had received and not paid for.

At appeal – both parties appeal. KGM says damages award was too great, Fresh Network says it should receive interest from the time of filing the suit (not just 30 days prior to trial)

Arguments:

Fresh Network says it deserves damages based on UCC 2-712 - “buyer may recover from seller as damages the difference between the cost of cover and the contract price”

KGM has a weak argument that these damages allow a windfall profit to Fresh Network and tries to use UCC 2-713 (market damages) which doesn’t make sense because in this case both 712 and 713 produce the same result.

Court says:

• Basic object of damages in contract cases is so party injured by breach receives as close as possible what he would have received had the other part not breached.
• Compensation system that gives aggrieved party benefit of bargain furthers goal of contract law
• In this case damage formula of 2-712 puts buyer in the identical position he would have been in had he received the contracted amount of lettuce at 9 cents a pound from KGM.
• It doesn’t matter whether breach was in good or bad faith.

Holding:

Where a buyer covers by making in good faith and without unreasonable delay any reasonable purchase of … goods in substitution from those due seller… buyer may recover from the seller as damages the difference between the cost of cover and the contract price (UCC 2-712). This gives the buyer the benefit of the bargain. What the buyer chooses to do with that bargain is not relevant to the determination of damages under section UCC 2-712.

UCC 2-712: “Cover”: Buyer’s Procurement of Substitute Goods

(1) After a breach within the preceding section the buyer may “cover” by making in good faith and without unreasonable delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.

(2) The buyer may recover from the seller as damages the difference between the cost of cover and the contract price together with any incidental or consequential damages as hereinafter defined (Section 2-715), but less expenses saved in consequence of the seller’s breach.

(3) Failure of the buyer to effect cover within this section does not bar him from any other remedy.