Sun-Maid Raisin Growers v. Victor Packing Co.
194 Cal. Rptr. 612, 37 U.C.C. Rep. Serv. (West) 148, 146 Cal. App. 3d 787 (1983)
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Rule of Law:
Under the Uniform Commercial Code, a seller who knows the buyer is a reseller has 'reason to know' of the buyer's potential for lost profits from a breach, and is liable for those lost profits even if their amount becomes extraordinarily large due to a foreseeable type of intervening event, such as adverse weather affecting market price.
Facts:
- Sun-Maid Raisin Growers of California (Sun-Maid) contracted to buy 1,800 tons of raisins from the 1975 crop from Victor Packing Company and Pyramid Packing Company (Victor).
- Victor was an experienced raisin packer and knew that Sun-Maid's business involved reselling raisins to the domestic market.
- By August 1976, Victor had delivered only 1,190 tons, leaving 610 tons undelivered.
- On August 10, 1976, Victor repudiated the contracts and refused to deliver the remaining 610 tons of raisins.
- Shortly after the repudiation, disastrous rains in September 1976 severely damaged the new raisin crop.
- This crop damage, combined with a lack of reserve raisins, caused the market price of raisins to increase extraordinarily, from approximately $860 per ton to over $1,600 per ton.
Procedural Posture:
- Sun-Maid Raisin Growers filed a complaint against Victor Packing Company and Pyramid Packing Company in a California trial court for breach of contract.
- After a court trial, the trial court entered a judgment in favor of Sun-Maid, holding appellants liable for damages totaling $307,339.
- The trial court denied the appellants' motion for a new trial.
- Appellants (Victor Packing and Pyramid Packing) filed an appeal to the intermediate appellate court, challenging the amount of the damages award as excessive and unforeseeable. Sun-Maid is the appellee.
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Issue:
Is a breaching seller in a forward contract for the sale of agricultural goods liable for consequential damages in the form of lost profits that resulted from an unusually large and unforeseen increase in market price, when that price increase was caused by a foreseeable type of event such as adverse weather?
Opinions:
Majority - Franson, Acting P. J.
Yes. A breaching seller is liable for the buyer's lost profits resulting from an extraordinary market price increase if the general cause of that increase was a foreseeable risk. The Uniform Commercial Code (§ 2715) imposes an objective 'reason to know' standard for consequential damages. Since Victor knew Sun-Maid was in the business of reselling raisins, it is charged with the knowledge that a breach would cause Sun-Maid to lose profits on resale. The possibility of rain damaging the raisin crop is a well-known and foreseeable risk in the agricultural industry, even if the severity of the rain and the magnitude of the resulting price spike in this specific instance were unforeseeable. Victor assumed this risk by contracting to sell at a fixed price and then failing to deliver, effectively gambling that market prices would not rise significantly. Having lost that gamble, Victor cannot claim the resulting damages were unforeseeable as a matter of law.
Analysis:
This decision clarifies the scope of foreseeability for consequential damages under UCC § 2715, particularly in volatile commodity markets. It establishes that foreseeability applies to the type of risk (e.g., adverse weather) rather than the specific magnitude of the resulting financial loss. The ruling reinforces that experienced sellers in agricultural industries bear the risk of price fluctuations caused by common industry perils. This prevents sellers from opportunistically breaching contracts when market conditions turn against them, thereby upholding the buyer's expectation interest to be put in the position they would have been in had the contract been performed.
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