Manouchehri v. Heim
941 P.2d 978 (1997)
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Rule of Law:
Under the Uniform Commercial Code (UCC), a buyer may recover consequential damages for lost profits from a breach of warranty if the loss was foreseeable to the seller, the buyer's failure to prevent the loss by cover was reasonable due to the seller's assurances of repair, and the amount of loss is proven with reasonable certainty for the claim's value.
Facts:
- Dr. A.H. Manouchehri, a physician, sought to purchase a used 100/100 x-ray machine for his medical practice.
- Jeff Heim, a medical supply sales representative familiar with Dr. Manouchehri, learned of this need.
- On December 9, 1991, Manouchehri purchased a machine from Heim for $1,900, writing "guaranteed to work (install Continental 100-100 x-ray) without limitation" on the payment check, which Heim then signed.
- After installation, Manouchehri discovered the machine performed as a weaker 100/60 model, which was inadequate for taking x-rays of many adult patients.
- Manouchehri informed Heim of the defect and offered to split the cost of repairs.
- Heim sent an inspector but did not repair the machine, though he continued to have regular conversations with Manouchehri about the problem for nearly three years.
- During this period, Manouchehri believed Heim would fix the machine as promised.
- Heim later admitted to Manouchehri that he knew the machine was a 100/60 model when he sold it.
Procedural Posture:
- Dr. Manouchehri sued Jeff Heim in district court for breach of warranty.
- An initial default judgment in favor of Manouchehri was entered and later set aside.
- After a bench trial, the trial court entered a judgment for Manouchehri, awarding $1,900 in direct damages and $2,500 in consequential damages.
- Heim filed a motion for reconsideration, which the district court denied.
- Heim (appellant) appealed the judgment to the Court of Appeals of New Mexico, with Manouchehri as the appellee.
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Issue:
Are consequential damages for lost profits from a breach of warranty recoverable when the buyer reasonably relied on the seller's assurances to repair instead of obtaining a replacement, the seller knew the professional purpose for which the goods were purchased, and the buyer provided testimonial evidence of the losses without extensive documentation?
Opinions:
Majority - Hartz, Chief Judge
Yes, consequential damages for lost profits are recoverable under these circumstances. The court affirmed the award of damages, reasoning that all requirements for consequential damages under UCC § 2-715 were met. First, the court held Manouchehri's duty to mitigate damages by obtaining 'cover' (a replacement machine) was excused for the period he reasonably relied on Heim's repeated assurances that he would repair the defective machine. Second, the lost profits were foreseeable because Heim was not an anonymous seller; he knew Manouchehri was a physician and was purchasing the machine for his practice, making it obvious that a malfunctioning unit would lead to lost income. A buyer does not need to disclose specific profit expectations for such damages to be foreseeable. Third, the court found that the certainty of proof required for damages must be considered in the context of the amount at stake. Manouchehri’s testimony, though lacking documentary evidence, was deemed sufficient to prove a $2,500 loss, a figure the trial court could find credible for a small claim. The court also affirmed the $1,900 direct damage award, re-characterizing it not as 'cost of repair' (for which there was no evidence) but as the difference between the value as warranted ($1,900 price) and the value as accepted ($0), a proper measure under UCC § 2-714.
Analysis:
This decision provides important clarification on the practical application of the UCC's consequential damages provisions, particularly for small businesses. It establishes that a buyer's duty to mitigate is not absolute and is tolled while reasonably relying on a seller's promises to cure a defect. The ruling reinforces that foreseeability does not require the buyer to disclose specific profit margins, but can be inferred from the seller's knowledge of the buyer's professional context. Finally, it introduces a flexible, context-dependent standard for the certainty of damages, suggesting that the evidentiary burden for proving lost profits is lower for smaller claims, thus preventing the cost of proof from becoming a barrier to recovery.
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