Continental Sand & Gravel, Inc. v. K & K Sand & Gravel, Inc.
755 F.2d 87, 40 U.C.C. Rep. Serv. (West) 387 (1985)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Under the Uniform Commercial Code, the measure of damages for breach of an express warranty is the cost to repair the goods to their warranted condition, and this amount is not limited by the original purchase price of the goods.
Facts:
- In 1979, K & K Sand & Gravel, Inc. and the Kammingas (defendants) agreed to sell their sand and gravel pit, inventory, and equipment to Continental Sand & Gravel Inc. (Continental).
- The agreement allocated $50,000 of the total purchase price to a collection of mobile equipment, including loaders, cranes, and a dredging barge.
- In the written agreement, the defendants made express warranties that the assets were 'in good order, condition and repair' and had no material defects affecting their intended use.
- Shortly after the purchase in March 1979, Continental discovered the mobile equipment was in poor condition and required extensive repairs.
- Continental incurred over $23,000 in repair bills in the first three months.
- On June 26, 1979, a federal inspector condemned one of the cranes as unsafe, shutting down production.
- Continental received estimates that repairing certain pieces of equipment would cost approximately $164,000.
- Based on the breach of warranty, Continental refused to make payments on a related $240,000 consulting agreement with the defendants.
Procedural Posture:
- Continental Sand & Gravel Inc. (plaintiff) sued K & K Sand & Gravel, Inc. and the Kammingas (defendants) in federal district court for breach of express warranties.
- The defendants filed a counterclaim against Continental for the unpaid balance on a related consulting agreement.
- The district court (trial court) entered a judgment finding that the defendants had breached their warranties.
- The district court awarded Continental $104,206.75 in damages, representing the cost of repairs, but denied Continental's claim for consequential damages (lost profits).
- The district court also found in favor of the defendants on their counterclaim, awarding them the balance due on the consulting agreement.
- The defendants appealed the trial court's finding of breach and the damage award to the U.S. Court of Appeals for the Seventh Circuit, and Continental cross-appealed the denial of lost profits and the judgment on the counterclaim.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Under the Uniform Commercial Code, are damages awarded for a breach of express warranty, calculated as the cost of repair, limited to the purchase price of the defective goods?
Opinions:
Majority - Cudahy, Circuit Judge
No, damages for breach of an express warranty are not limited to the purchase price of the goods. Under Illinois Uniform Commercial Code § 2-714(2), the proper measure of damages is the difference between the value of the goods as warranted and their value as accepted, and the cost of repair is the correct standard for calculating this difference. The court reasoned that limiting damages to the purchase price would deprive the buyer of the 'benefit of its bargain' in cases where the value of the goods as warranted exceeds the price paid. Therefore, an award for repair costs that is greater than the purchase price is permissible to place the buyer in the position it would have been in had the warranty not been breached.
Analysis:
This decision reaffirms the core principle of expectation damages in contract law, specifically within the context of the UCC's rules for breach of warranty. It clarifies that the goal is to give the buyer the 'benefit of the bargain,' not simply to return their investment. By holding that repair costs can exceed the purchase price, the court prevents sellers from escaping the true cost of their breach by selling defective goods at a low price. This precedent solidifies 'cost of repair' as a primary and acceptable method for calculating the difference in value required by UCC § 2-714(2), providing a clear standard for future cases involving defective goods.
