Allied Canners & Packers, Inc. v. Victor Packing Co.
39 U.C.C. Rep. Serv. (West) 1567, 209 Cal. Rptr. 60, 162 Cal. App. 3d 905 (1984)
Rule of Law:
Under the Uniform Commercial Code, a buyer's damages for non-delivery are limited to actual economic loss—rather than the statutory difference between market price and contract price—when the seller breaches in good faith and the buyer has a fixed resale contract that limits their liability to the third party.
Facts:
- Allied Canners & Packers (Allied) entered into two contracts to purchase ten containers of raisins from Victor Packing Company (Victor).
- Allied had 'back-to-back' resale contracts to export these raisins to Japanese buyers, specifically Shoei Foods, expecting a fixed profit of roughly $4,462 based on a 4% commission/discount.
- Heavy rains severely damaged the raisin crop drying on the ground, causing the Raisin Administrative Committee (RAC) to withdraw the cheap 'reserve' raisins Victor intended to use to fulfill the contract.
- Victor failed to secure the necessary raisins and notified Allied that it would not deliver, thereby breaching the contract.
- The market price of raisins skyrocketed due to the crop damage, rising from the contract price of approximately 30 cents per pound to 87 cents per pound.
- Allied did not purchase substitute raisins ('cover') on the open market.
- Allied's contract with its Japanese buyer, Shoei, contained a 'hold harmless' clause preventing liability for non-delivery caused by events beyond Allied's control, such as crop failure.
- Consequently, Allied suffered no liability to its customer and lost only its expected profit of $4,462, yet the difference between the market price and the contract price was approximately $150,000.
Procedural Posture:
- Allied sued Victor for breach of contract in the California trial court.
- The trial court conducted a bench trial (trial without a jury).
- The trial court ruled that Allied was a 'broker' rather than a 'buyer' and awarded damages of only $4,462.50 (the lost commission) rather than the requested ~$150,000 based on market price.
- Allied appealed the judgment regarding the measure of damages and their legal status to the California Court of Appeal.
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Issue:
Does the general policy of the Uniform Commercial Code (§ 1-106) to limit remedies to actual loss override the specific statutory formula for damages (§ 2-713) when a seller breaches in good faith and the buyer is protected from liability on a resale contract?
Opinions:
Majority - Rouse
Yes, the limitation to actual loss applies. The Court held that while the statutory formula in UCC § 2-713 (Market Price minus Contract Price) generally applies when a buyer does not cover, the policy in UCC § 1-106 (putting the aggrieved party in 'as good a position as if performed') prevents the award of windfall damages in this specific context. The Court acknowledged that Allied was technically a 'buyer' and not a broker, correcting the trial court on that point. However, the Court reasoned that because the seller knew of the resale contract, the buyer faced no liability to the third party, and the seller did not breach in bad faith (e.g., to sell higher elsewhere), awarding $150,000 for a $4,000 loss would constitute unjust enrichment. Therefore, damages were properly limited to the actual lost profit.
Analysis:
This case is significant because it carves out a specific equitable exception to the strict application of the UCC § 2-713 damages formula. Typically, a buyer is entitled to the difference between market price and contract price regardless of their actual loss. However, this court prioritized the 'actual loss' principle of § 1-106 over the 'hypothetical cover' formula of § 2-713 in cases involving back-to-back contracts where the middleman is insulated from liability. It prevents plaintiffs from using market fluctuations to secure windfalls significantly larger than their true economic expectancy. Future cases usually limit this holding to situations where the seller acted in good faith; bad faith breaches often still result in full market damages to deter sellers from efficient breach.
