## Facts

- Horizons, Inc., an aerial mapping and photography business, purchased an Avco remanufactured aircraft engine through Avco’s authorized distribution chain (via Casper Air Service, after contact with Aviation Sales).
- Horizons ordered the engine in December 1977 for $12,767 and installed it in a Cessna 310 in mid-June 1978.
- Soon after installation, the engine experienced repeated malfunctions, including backfiring, leading to breakdowns and downtime.
- Horizons notified Avco of the problems and incurred expenses attempting to correct the issues, ultimately overhauling the engine.
- After a bench trial, the district court found a valve-train defect existed at remanufacture and was not caused by normal wear, making the engine unfit for ordinary use.
- The district court awarded general damages ($9,974.37), incidental damages ($619.84), and consequential damages ($56,265) for lost production capacity during downtime, calculated using a capacity-based method tied to 57.7 hours of lost “productive time.”
- Avco appealed liability and damages; Horizons cross-appealed seeking additional “cover” damages for replacement/overhaul costs beyond the amounts awarded.

## Issues

1. Whether Avco breached the implied warranty of merchantability when the remanufactured engine malfunctioned shortly after installation due to a pre-existing defect.
2. Whether Horizons could recover consequential damages for lost profits/production capacity under U.C.C. § 2-715, and whether the trial court’s calculation improperly treated Horizons as a lost-volume seller despite eventual completion and payment of delayed contracts.
3. Whether Avco had reason to know of Horizons’ particular requirements such that downtime-related losses were foreseeable under U.C.C. § 2-715.
4. Whether Horizons was entitled to additional “cover” damages beyond the direct and incidental amounts already awarded.

## Decision

- The court affirmed the finding that Avco breached the implied warranty of merchantability.
- The court modified/limited the consequential damages award, holding the trial court’s lost-volume style methodology overstated loss where contracts were delayed but ultimately completed and paid in full.
- The court rejected Horizons’ cross-appeal for additional cover damages, concluding the denial of further recovery on that theory was not error.
- The judgment was affirmed in part and modified in part.

## Legal Principles

- Goods are unmerchantable if they are not fit for their ordinary purpose; a remanufactured aircraft engine that fails due to a defect present at remanufacture can support breach of the implied warranty of merchantability.
- Consequential damages under U.C.C. § 2-715 require (i) loss arising from needs the seller had reason to know at contracting and (ii) loss that could not reasonably be prevented; recovery must be proven and causally tied to the breach.
- Damage awards must be compensatory and non-duplicative, placing the buyer in as good a position as performance would have, but not better.
- A lost-volume framework is improper where the buyer’s contracts were delayed rather than lost and the buyer ultimately received the full contract price; damages must reflect actual loss from delay (such as additional costs or provable profit loss), not hypothetical production value that was later realized.

## Conclusion

The court upheld liability for breach of the implied warranty of merchantability based on a defect in a remanufactured aircraft engine, but curtailed consequential damages because the buyer’s method treated delayed work as if it were permanently lost, and it declined to award additional cover damages beyond the direct and incidental recovery already granted.


Horizons, Inc. v. Avco Corp., 714 F.2d 862 (8th Cir. 1983)