A buyer enters into a contract with a seller for the purchase of 1,000 custom-made widgets for $10,000, with delivery scheduled for June 1st. On May 15th, before any performance is due, the seller receives a lucrative offer from another buyer for the same widgets at a higher price. The seller then sends an email to the first buyer stating, 'Due to unforeseen circumstances, I will be unable to deliver your order on June 1st or at any time thereafter.' The first buyer immediately secures a replacement order from another supplier for $12,000. What is the buyer's measure of damages?
- A$0, as the buyer mitigated damages.
- B$12,000, the cost of the replacement order.
- C$2,000, the difference between the contract price and the cover price.
- D$10,000, the full contract price.
Show answer & explanationAnswer & explanation
Correct answer: C. $2,000, the difference between the contract price and the cover price.
This scenario involves an anticipatory repudiation and the buyer's right to 'cover' under the UCC. When a seller repudiates, the buyer can procure substitute goods (cover) and recover the difference between the cost of cover and the contract price, plus incidental and consequential damages, less expenses saved. Here, the cover price ($12,000) minus the contract price ($10,000) equals $2,000.
Why the other options are wrong
- A. Mitigation reduces damages, but doesn't eliminate them; the buyer still suffered a loss.
- B. The buyer recovers the *difference* in price, not the full cost of the replacement, otherwise they would be unjustly enriched.
- D. The buyer would not recover the full contract price, as they did not pay it and mitigated their damages.
Buyer's Remedy: Cover (UCC)
Under the UCC, if a seller breaches, the buyer may 'cover' by purchasing substitute goods in good faith and without unreasonable delay, and then recover the difference between the cost of cover and the contract price.
- Applies to contracts for the sale of goods.
- Buyer must act in good faith and be reasonable.
- Damages = cost of cover - contract price + incidental/consequential damages - expenses saved.
Memory trick: Cover Your Loss with the Difference in Price.