## Facts

- A California lettuce grower/distributor (seller) and an Ohio lettuce broker (buyer) operated under a modified long-term supply agreement requiring weekly deliveries of 14 loads at $0.09 per pound.
- The buyer resold the lettuce through intermediaries under “cost-plus” arrangements to a processor supplying fast-food chains.
- When lettuce prices spiked in May–June 1991, the seller refused to deliver the required quantities and instead sold at higher market prices.
- To meet its downstream commitments, the buyer purchased substitute lettuce on the open market at higher prices.
- The seller sued for unpaid invoices; the buyer cross-complained for breach and sought cover damages measured by the difference between the contract price and the cost of substitute purchases.

## Issues

1. Whether the jury’s award of cover damages (cover cost minus contract price) was excessive because downstream parties absorbed much of the buyer’s increased costs.
2. Whether the buyer was entitled to prejudgment interest from August 1, 1991, on the ground that damages were certain or capable of being made certain by calculation as of that date.

## Decision

- The court affirmed the judgment awarding the buyer cover damages measured by the difference between the cost of cover and the contract price.
- The court rejected the seller’s “windfall” argument based on the buyer’s downstream cost-plus arrangements and reimbursements.
- The court reversed the trial court’s prejudgment interest start date and held interest should run from August 1, 1991.
- The judgment was affirmed on the merits and modified to increase prejudgment interest.

## Legal Principles

- Under California’s UCC provisions governing buyer’s remedies and cover, a buyer who makes a reasonable, good-faith cover purchase without unreasonable delay may recover damages equal to the difference between the cost of cover and the contract price.
- Statutory cover damages are not reduced merely because the buyer’s downstream contracts shift or pass through some economic impact of the seller’s breach, absent a showing of impermissible double recovery.
- A seller’s claim that damages are a “windfall” fails where the UCC measure applies and the buyer remains exposed to liability within the distribution chain.
- Prejudgment interest is awarded from the date the right to recover vests when damages are certain or capable of being made certain by calculation; in cover cases, this can be when quantities and cover prices are known and arithmetically determinable.

## Conclusion

The court held that a buyer may recover UCC cover damages based on cover cost minus contract price even if downstream customers ultimately bear much of the increased cost, and it required prejudgment interest from the date the buyer’s cover damages became ascertainable by calculation.


KGM Harvesting Co. v. Fresh Network, 36 Cal. App. 4th 376 (Ct. App. 1995)