A buyer enters into a contract with a seller for the purchase of 1,000 custom-made widgets for $10 per widget, totaling $10,000, with delivery in 30 days. The buyer plans to use these widgets to fulfill a lucrative resale contract for $15 per widget, which the seller was aware of. Two weeks before delivery, the seller unequivocally informs the buyer that they will not be able to produce or deliver the widgets. The buyer immediately searches for alternative suppliers but can only find a similar widget for $12 each, which will also delay their resale contract by a week. What is the buyer's best course of action and likely remedy?
- ATreat the seller's statement as an anticipatory repudiation, immediately seek cover, and sue for damages including the cost of cover and consequential damages.
- BRescind the contract and recover only the down payment, if any, as the seller has indicated an inability to perform.
- CWait until the original delivery date to sue for breach, claiming expectation damages equal to the $5,000 profit from the resale contract.
- DSue for specific performance, as the widgets are custom-made and thus unique.
Show answer & explanationAnswer & explanation
Correct answer: A. Treat the seller's statement as an anticipatory repudiation, immediately seek cover, and sue for damages including the cost of cover and consequential damages.
The seller's unequivocal statement constitutes anticipatory repudiation. The buyer can treat this as an immediate breach, seek 'cover' (purchase substitute goods), and recover damages including the difference between the contract price and cover price, plus any foreseeable consequential damages (like lost profits from the resale contract due to delay, if proven).
Why the other options are wrong
- B. Rescission for anticipatory repudiation is an option, but it would only return the parties to their pre-contract position, not allow recovery of expectation or consequential damages.
- C. Waiting until the delivery date is not required after anticipatory repudiation and could exacerbate damages. The $5,000 profit is consequential, but cover is primary.
- D. While custom-made, widgets are generally not considered unique enough for specific performance, especially if substitute goods (cover) are available, even if at a higher price.
Anticipatory Repudiation & Cover (UCC)
When a party unequivocally indicates they will not perform before performance is due, the non-breaching party can treat it as an immediate breach. Under the UCC, the buyer can then 'cover' by purchasing substitute goods and recover the difference between the contract price and the cover price, plus consequential damages.
- Must be a clear and unequivocal statement of non-performance.
- Allows non-breaching party to sue immediately.
- Buyer's remedy of 'cover' involves buying substitute goods in good faith.
- Consequential damages (like lost profits) are recoverable if foreseeable to the seller.
Memory trick: Future No-Go, Present Lawsuit.