Thank You For Submiting Feedback!
Pursuant to Cal. Com. Code § 2713, if a buyer elects not to cover and sues for damages for breach, the measure of damages is the difference between market value and the contract price, and under Cal. Com. Code § 2715 any consequential damage resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise. In order to recover consequential damages other than those which could not have been avoided by cover or otherwise, the buyer must have made a good faith attempt to mitigate his losses by cover.
Plaintiff Henry J. Gerwin entered a bid to purchase fixtures from defendant Southeastern California Asociation of Seventh Day Adventists. Plaintiff’s bid was accepted, and he paid the requested payment in full. A dispute arose over the items to be delivered, and defendant refused to deliver any of the items. Plaintiff filed suit and was awarded specific performance and consequential damages. Defendant sought review, contending that there was insufficient evidence that a contract had been formed. Defendant further argued that plaintiff's failure to cover barred recovery of direct damages, and that the award of consequential damages based upon loss of anticipated profits was improper.
Was the award of consequential damages based upon loss of anticipated profits proper under the circumstances?
The Court of Appeal reversed that part of the judgment awarding consequential damages and affirmed the remainder. The evidence was held sufficient to support the conclusion that a contract was entered into and to support the award of damages in lieu of specific performance, but was considered insufficient to support the award of consequential damage for loss of prospective profits from a bar and restaurant business in which plaintiff intended to use the equipment. Though the court took the view that plaintiff was not required to "cover" under the circumstances by purchasing substitute items, it pointed out that defendant, not knowing it was dealing with plaintiff at the time the bid was accepted, could not reasonably have foreseen the consequences to him of breach of the contract. Additionally, the court found that the evidence of loss of anticipated profits did not measure up to the required standard of reasonable certainty.