## Facts

- A California public school district solicited bids to purchase an IBM System 370/135 or 370/145, or an equivalent system compatible with the district’s existing software and peripheral equipment.
- A computer broker submitted a written bid stating it was prepared to deliver and install one of the specified IBM configurations by the end of July, identifying particular models/serial numbers and prices.
- The district accepted the bid and allowed other bidders’ offers to expire in reliance on the promised delivery date.
- The broker failed to acquire and deliver a satisfactory, compatible computer by the end of July.
- The district rebid the procurement and purchased a replacement system at a price nearly $60,000 higher than the broker’s contract price.
- The district had also obtained peripheral equipment in reliance on receiving the computer and incurred rental charges while the peripherals remained unusable due to non-delivery of the central processor.

## Issues

1. Whether the broker’s bid was sufficiently definite to constitute an offer forming a binding contract upon the district’s acceptance.
2. Whether the district’s decision to rebid and purchase a higher-priced substitute system constituted good-faith, commercially reasonable cover under California’s U.C.C., and whether cover damages could be limited to the differential between the broker’s bid and the second-lowest original bid.
3. Whether rental charges for idle peripheral equipment were recoverable as incidental or consequential damages caused by the broker’s breach.

## Decision

- The Ninth Circuit affirmed the finding that a contract was formed and that the broker breached by failing to deliver a satisfactory computer by the agreed time.
- The court reversed the limitation on cover damages that tied recovery to the second-lowest original bid, holding the district could recover the full difference between the contract price and the price paid in the replacement transaction if the cover purchase was in good faith and commercially reasonable.
- The court affirmed the award of peripheral-equipment rental charges as recoverable damages attributable to the breach.
- The case was remanded for recalculation of cover damages consistent with the appellate holding.

## Legal Principles

- A contract may be formed from a bid response and a solicitation read together when the essential terms are sufficiently definite to permit enforcement.
- Under California’s U.C.C. cover provision (U.C.C. § 2-712 as codified), an aggrieved buyer may recover the difference between the cost of a good-faith, commercially reasonable substitute purchase and the contract price, plus incidental and consequential damages, less expenses saved.
- Commercial reasonableness of cover is evaluated in light of the circumstances at the time of breach; the buyer is not required to select the cheapest alternative available or accept an expiring offer to preserve full cover damages.
- Incidental and consequential damages are recoverable when the expenses were reasonably incurred as a result of the breach and were foreseeable to the seller, including costs tied to equipment acquired for use with the contracted goods.

## Conclusion

The Ninth Circuit held that the broker’s bid formed an enforceable contract and that, because the district acted in good faith and used a commercially reasonable rebidding process to obtain substitute goods, it could recover full cover damages measured by the replacement purchase price differential, along with foreseeable peripheral-equipment rental costs caused by the non-delivery.


Huntington Beach Union High Sch. Dist. v. Cont’l Info. Sys. Corp., 621 F.2d 353 (9th Cir. 1980)