Opinion ID: 1763933
Heading Depth: 1
Heading Rank: 3

Heading: the plaintiff is entitled to consequential damages as a result of the breach of warranty by the defendant

Text: Sola alleges that the evidence was insufficient to show that Leininger was entitled to consequential damages from Sola's breach of warranty. We believe that consequential damages were properly awarded in this case but we disagree because the evidence does not justify the amount of these damages awarded. Sections 41-02-93, N.D.C.C. [2-714 (UCC)] and 41-02-94, N.D.C.C. [2-715 (UCC)], [5] provide that consequential damages can be recovered when goods are accepted, but later are discovered to be nonconforming. In Schneidt v. Absey Motors, Inc., 248 N.W.2d 792, 799 (N.D.1976), this court recognized that § 41-02-94, N.D.C.C. [2-715 (UCC)], limits damages for breach of a contract to those reasonably foreseeable in consequence of the breach. In the instant case Sola admitted on direct examination that he knew the cows were being purchased to start a dairy operation and that they would not be of any benefit to Leininger if they were not pregnant. Under these circumstances the loss of dairy production from dry, unbred cows was reasonably foreseeable. The trial court awarded Leininger consequential damages for loss of production and, thus, lost profits, because Sola's breach of warranty delayed milk production significantly. In its memorandum decision, the trial court cited Dold v. Sherow, 220 Kan. 350, 552 P.2d 945 (1976), in which the Supreme Court of Kansas awarded damages for the loss of profits expected from a calf crop. In Dold v. Sherow, supra , the plaintiff told the defendant that he wanted certain cows for calf-production purposes and that he would have no use for the cows if they were not bred. The cows were not pregnancy tested because of the additional expense. The plaintiff in Dold purchased the cows in reliance upon the representations by the defendant that all cows would freshen by April 15, 1973, and were not more than seven years old. When the cows did not calve by the specified date, some three months after their purchase, they were pregnancy checked and some were found not to be pregnant and forty of the fifty cows purchased were found to be older than seven years of age. The Supreme Court of Kansas stated that the plaintiff was entitled to consequential damages and that it was in the discretion of the jury to award plaintiff a reasonable amount as damages for lost profits. Also cited by the trial court was Bemidji Sales Barn, Inc. v. Chatfield, 312 Minn. 11, 250 N.W.2d 185, 188 (1977), in which a purchaser sought compensation alleging breach of warranty that breeding cattle had been vaccinated for shipping fever. The Minnesota Supreme Court stated in that case: Lost profits, provided they are foreseeable by the seller, are clearly recoverable under § 336.2-714(3), and were long recognized as a form of compensable damage prior to adoption of the Uniform Commercial Code. The rationale for awarding lost profits as consequential damages is demonstrated by the instant case. Leininger sought cows that would produce milk. Their failure to be as warranted caused Leininger a financial loss. He incurred all of the expenses of starting a dairy operation, including the costs of keeping a dairy herd but, because there was significantly delayed production or no production from nineteen of the twenty-three cows purchased, Leininger was deprived of income from his investment. The only adequate compensation for these damages must go to the benefit that should have been derived from the contract, i.e., milk production. Because of the inherent difficulties in proving consequential damages, such as lost profits, the Uniform Commercial Code requires proof that is reasonable under the circumstances. The Official Comment to the Uniform Commercial Code, § 2-715 states; 4. The burden of proving the extent of loss incurred by way of consequential damage is on the buyer, but the section on liberal administration of remedies rejects any doctrine of certainty which requires almost mathematical precision in the proof of loss. Loss may be determined in any manner which is reasonable under the circumstances. [1A Uniform Laws Annotated 446 (1976 Master Ed.)] In W & W Livestock Enterprises, Inc. v. Dennler, 179 N.W.2d 484, 489 (Iowa 1970), the Iowa Supreme Court upheld a loss of profits' award, stating: The showing required, we have said, is sufficient if the record shows data from which the extent of the injury can be ascertained with reasonable certainty. Data for an exact calculation is not necessary. In documenting the production lost, Leininger introduced into evidence an independent record of a day's production for each producing cow in his herd. The record was made by an independent employee of the State Cooperative Extension Service and it shows the individual production of fourteen of the twenty-three cows Leininger purchased from Sola, as well as that of several other cows acquired from other sources. The record was made on March 17, 1980, a point at which all of the animals had been bred. This data was valuable in that it showed a representative sample of the herd's production. Because milk production varies throughout a milk production cycle, the fact that the cows were in various stages of their milk production cycles makes the data representative. The district court then calculated the average daily production of milk per cow in Leininger's herd to be 46.14 pounds. The district court explained in its memorandum decision its reasons for applying this daily production rate figure: 1. The data which is but a sample of total production is drawn from some of the very cows in question, plus other cows belonging to the same herd. 2. The seasonal variation in milk production during a lactation period for a particular cow is compensated for in this sample by reason of the fact that the cows in the sample had freshened at various times during the production year. 3. No other evidence was submitted on which to base the finding of daily milk production. We believe that the trial court's calculations of the days of lost production and daily production rate are reasonable under the circumstances, but that its calculation of lost net profit overlooks a significant production cost which Leininger avoided as a result of the breach of warranty. We discuss this issue later in this opinion in connection with the sufficiency of the evidence supporting the amount of consequential damages awarded. Within the context of the issue of consequential damages, Sola additionally contends that Leininger was unreasonable in his attempt to mitigate his damages and that the evidence was insufficient to support the amount of consequential damages awarded. Sola first argues that when a buyer has a remedy of cover he cannot recover consequential damages that he could have avoided by cover. The citations used to support his argument require a buyer to mitigate his damages by cover or otherwise before he can recover consequential damages. They do not, however, require cover to the exclusion of other means of mitigating damages. The trial court in its memorandum decision discussed this argument and emphasized that § 41-02-91, N.D.C.C. (2-712 UCC), provides that the buyer may cover by making a reasonable purchase of or contract to purchase goods in substitution of those from the seller. The court also pointed out that § 41-02-91(3), N.D.C.C., provides that: 3. Failure of the buyer to effect cover within this section does not bar him from any other remedy. Both the trial court and Sola cite to the Official Comment to § 2-712 of the Uniform Commercial Code for support, but for different purposes. That Comment states: 3. Subsection (3) expresses the policy that cover is not a mandatory remedy for the buyer.... However, this subsection must be read in conjunction with the section which limits the recovery of consequential damages to such as could not have been obviated by cover. Moreover, the operation of the section on specific performance of contracts for `unique' goods must be considered in this connection for availability of the goods to the particular buyer for his particular needs is the test for that remedy and inability to cover is made an express condition to the right of the buyer to replevy the goods. In connection with this Comment, the trial court recognized that Breeding stock has seasonal characteristics, the full details of which have not been made part of this record, but which nevertheless are sufficiently known to make a distinction from ordinary inventoriable merchandise and stated that the situation in the instant case is far different from one which would arise if inanimate nonconforming goods were the subject of the transaction. Sola emphasizes in the Comment to § 2-712, UCC, that portion which states that this subsection [3] must be read in conjunction with the section which limits the recovery of consequential damages to such as could not have been obviated by cover. Subsection 2 of § 41-02-94, N.D. C.C. (§ 2-715(2), UCC), is the section which discusses the limitation on the recovery of consequential damages, as follows: (2) Consequential damages resulting from the seller's breach include (a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; The Comment to subsection (2) explains: Although the older rule at common law which made the seller liable for all consequential damages of which he had `reason to know' in advance is followed, the liberality of that rule is modified by refusing to permit recovery unless the buyer could not reasonably have prevented the loss by cover or otherwise. Subparagraph (2) carries forward the provisions of the prior uniform statutory provision as to consequential damages resulting from breach of warranty, but modifies the rule by requiring first that the buyer attempt to minimize his damages in good faith, either by cover or otherwise. 2 Anderson UCC § 2-715:22, this same idea is stated, as follows: When the buyer seeks to recover for consequential damages he is barred as to those which he could have reasonably avoided by cover. Gerwin v. Southeastern California Ass'n of Seventh Day Adventists, 92 Cal.Rptr. 111, 117, 14 Cal.App.3d 209 (1971), explains that the concept of cover enables a buyer to make reasonable substitute purchases and to recover those costs while, at the same time, it protects a seller from consequential damages which could have been mitigated by a purchase of substitute goods. In Clark v. International Harvester Co., 99 Idaho 326, 581 P.2d 784, 805 (1978), the court stated that a plaintiff is only required to take reasonable steps to mitigate damages. It was stated in Hardwick v. Dravo Equipment Co., 279 Or. 619, 569 P.2d 588, 591 (1977), that the defendant has the burden of proving that mitigation of damages was reasonably possible and that the question of the ability to mitigate damages is a question of fact. In Dangerfield v. Markel, 278 N.W.2d 364, 368 (N.D.1979), in discussing proper cover pursuant to § 2-712, UCC, we stated that the criteria of good faith and reasonable purchase are questions of fact which will not be set aside unless clearly erroneous. The Official Comment to § 2-712, UCC (§ 41-02-91, N.D.C.C.), states that: The test of proper cover is whether at the time and place the buyer acted in good faith and in a reasonable manner, and it is immaterial that hindsight may later prove that the method of cover used was not the cheapest or most effective. In the instant case we believe that the same test of acting in good faith and in a reasonable manner are applicable to the question as to whether or not Leininger's attempts to mitigate his damages were reasonable absent his effecting cover by purchasing ten freshened cows. Reviewing this issue of reasonableness as a question of fact we are bound by the findings of the trial court unless we are convinced that a mistake has been made. Rule (52 a), of the North Dakota Rules of Civil Procedure. We believe that the trial court had sufficient evidence to find that Leininger did not unreasonably delay his attempts to mitigate his damages and that such attempts to mitigate his damages were reasonable. Of the twenty-three cows purchased, four had calves at staggered intervals from January to March. This raised a reasonable expectation that the other cows would also calve at any time. When one cow displayed characteristics of being open Leininger had that cow artificially inseminated. When no further calves were born, Leininger attempted to reach Sola by telephone several times but Sola did not return Leininger's phone calls. Leininger finally reached Sola in late April to notify him of the nonconforming nature of the cows. Pursuant to the conversation between the parties, a veterinarian was immediately contacted and he pregnancy tested the cows in early May. It was at this time that Leininger learned that milk production from the nineteen cows would be significantly delayed. Leininger again contacted Sola but they did not meet until June 16, 1979. In the meantime, Leininger purchased a bull and bred the open cows and arranged to graze the cattle in rented pasture throughout the summer. When the parties met on June 16, 1979, Sola offered to buy back the ten open cows at their original purchase price and to provide Leininger with some hay to provide for the care and feeding of the cows for six months. Leininger rejected this offer. The following day Mrs. Sola telephoned Leininger and informed him that Sola would disregard the counter demands made by Leininger's counsel. There were no further contacts between the parties. At this point the options available to Leininger involved financial losses. He could have sold the cows and replaced them with other cows in their milk production cycle. However, the district court found that for Leininger to be placed under a duty to cover in this manner under these circumstances would not be reasonable because it is cheaper to buy one bull than to buy ten freshening cows. Testimony at the trial by Leininger on direct examination was to the effect that he had thought about trading off the cows but that from the time they were pregnancy checked in May until June 16, the cows had been bred, were going out to pasture, and were in pretty good shape. He didn't want to sell them because he couldn't get much for them at that time of the year. He further stated that in June of 1979 he would have lost quite a bit and that he would never have gotten back what he had invested in the cows. Also, rescission would have involved financial losses because of the investment Leininger had made in the cows during the six months that they had been in his possession. Leininger minimized the necessity of further investment of capital by keeping the cows in pasture throughout the summer, at which time nine of the cows were near calving and the other ten cows were one-third of the way through their gestation period. Based on the facts stated above, we cannot say that Leininger's attempts to mitigate his damages were unreasonable and we believe that the trial court had sufficient evidence to sustain its finding that Leininger's actions to mitigate his damages were reasonable. On the other hand, Sola has not presented evidence which would indicate to the trial court or this court that Leininger's actions to mitigate his damages were unreasonable when compared to the cost of purchasing ten freshening cows. Sola's second argument within the context of the issue of consequential damages is that the trial court awarded gross profits to Leininger instead of net profits because it failed to consider the difference between the cost of maintaining producing cows and non-producing cows over a winter. The trial court stated in its memorandum decision that The plaintiff was thus forced to feed and care for the cows even though they were not producing milk and bringing him revenue by such production. As a result, the breach of warranty hardly reduced the plaintiff's costs, but acted to deprive him of vital income. The trial court also stated that Sola's claims were with respect to specific minute factors lacking in the record. The trial court also brought out that its memorandum decision was prepared without the benefit of a written transcript of the trial proceedings. We, however, have the benefit of a transcript and find testimony by Leininger on direct examination that it cost about $150 to winter a stock cow and that it costs him $3 a day for a producing milk cow. He also testified that to winter a stock cow costs about the same as a dry cow. Leininger further testified that over the winter means from around the first of November until the cows are put out to pasture in the spring. In the light of this testimony we do not consider the difference between wintering a producing cow and a dry cow to be a minute factor in the instant case. It is a significant cost of production that Leininger avoided as a result of the breach of warranty. We assume for purposes of this opinion that Leininger wintered the nineteen non-producing cows from December, when he purchased them, until June, when he put them out to pasture. We calculate the cost for wintering the nineteen cows, had they been producing from the January 1 date, the date used by the trial court to determine lost production days, until June 16, to be $9,405. [6] The cost for wintering the nineteen dry cows for this same 5½ month period is $2,612.50. [7] The difference between these two figures is $6,792.50, which represents the feeding costs avoided by Leininger as a result of the breach of warranty. We believe, therefore, that the trial court's award of consequential damages in the amount of Leininger's estimated lost production, less only shipping costs, is not supported by the evidence. The difference in feeding costs between producing and non-producing cows must be subtracted from the award of consequential damages in order for Leininger to realize the damage award which reflects only his net lost profits. For this reason, unless Leininger consents to a remittitur of $6,792.50, we will grant a new trial on the issue of consequential damages. Sola additionally pointed out to this court at oral argument that two of the nineteen cows that did not conform to the warranty were sold prior to the trial. This fact, however, was not set out in his motion for a new trial or in his brief in support of motion for a new trial; nor is there any indication in the record as to which of the nineteen cows were sold, when they were sold, and whether or not they were sold after they began producing milk; or whether or not they were among the ten unbred cows. Without such information we cannot say that the evidence was insufficient to an extent that would merit a new trial. We conclude that there was sufficient evidence in the record to sustain the order of the district court denying the motion for new trial with the exception of the amount of the award of consequential damages. Therefore, unless Leininger consents to a remittitur in the amount of $6,792.50 in a total damage award of $22,440.50, we will grant a new trial on the issue of consequential damages. See 59(b)(6), N.D.R.Civ.P.; Demaray v. Ridl, 249 N.W.2d 219 (N.D. 1976). ERICKSTAD, C. J., concurs. VANDE WALLE and SAND, JJ., concur in the result.