Opinion ID: 732214
Heading Depth: 3
Heading Rank: 1

Heading: Trial Court's Application of Utah Law

Text: 14 American Pulverizer first contends the trial court misapplied Utah law in awarding Savage Industries damages for the CV-111 conveyer. Essentially, American Pulverizer argues the district court improperly allowed Savage Industries to recover both the cost of the Canica System under a cover theory and the cost of the CV-111 conveyor under a benefit of the bargain theory. Such a recovery, argues American Pulverizer, is in direct contravention to Utah's enactment of the Uniform Commercial Code, which provides an aggrieved buyer may either elect to cover and recover the expenses it incurred in covering or it may recover damages for non-delivery based upon the benefit of the bargain. Here, since Savage Industries chose to cover, American Pulverizer contends it is only entitled to recover damages for the costs of acquiring and installing the replacement Canica System. 15 Savage Industries, on the other hand, argues it is not precluded from recovering damages for the CV-111 conveyor because Savage Industries only effected a partial cover when it purchased and installed the Canica System. Unlike the design of the Zeigler System, the Canica System did not have a closing loop conveyor. Thus, according to Savage Industries, the purchase of the Canica System was merely a partial cover, and does not bar Savage Industries from recovering the economic value of the CV-111 conveyor. 16 Under Utah's enactment of the Uniform Commercial Code, where the seller of goods in a transaction fails to deliver or repudiates his obligation to do so, the buyer may effect cover and receive damages as measured by the difference between cover price and the contract price or recover the economic loss of a contract as measured by the difference between market price and the contract price. Utah Code Ann. §§ 70A-2-711-70A-2-713 (1990). In order to prevent double recovery, a buyer may recover the economic loss only when and to the extent that the buyer has not covered. U.C.C. § 2-713 Official Comment 5. The remedies set forth in Utah's Uniform Commercial Code shall be liberally administered to the end that the aggrieved party may be put in as good a position as if the other party had fully performed. Utah Code Ann. § 70A-1-106. 17 American Pulverizer has cited no Utah case law in support of its argument that the trial court erroneously applied Utah law in awarding Savage Industries damages for the CV-111 conveyor. Our review of relevant authorities indicates no Utah court nor any other court located in the Tenth Circuit has spoken on the issue of whether a buyer may recover benefit of the bargain damages in situations where the buyer has partially covered. Thus, we must turn to outside jurisdictions for guidance. 18 In Mann & Parker Lumber Co. v. Wel-Dri, 579 F.2d 973, 975 (6th Cir.1978), the defendant contracted to sell kilns and lumber handling equipment to the plaintiff. Thereafter, the defendant repudiated the contract and the plaintiff purchased substitute kilns from a third-party. Id. at 976. The district court denied the plaintiff damages for the defendant's failure to deliver and install the lumber handling equipment because the plaintiff had still not acquired an inspection and grading system. Id. at 977. On appeal, the Sixth Circuit disagreed, stating we know of no principle of contracts that requires an aggrieved buyer to purchase substitute goods with respect to each and every part of the contract in the event of a total breach of contract, as a condition precedent to an award of damages for that breach. Id. at 979. Consequently, the Sixth Circuit remanded the case for the district court to determine the amount of damages resulting from the defendant's failure to deliver and install the equipment. Id. at 980. 19 Similarly, in Interior Elevator Co. v. Limmeroth, 594, 565 P.2d 1074, 1075 (Ore.1977), the parties entered into a contract whereby the defendant agreed to sell the plaintiff 125,801 bushels of wheat. The plaintiff then entered a contract with a third-party to provide him with 125,000 bushels of wheat. 565 P.2d. at 1076. After delivering 120,663 bushels of wheat to the plaintiff, the defendant informed the plaintiff he would not be able to supply the remaining portion of wheat due under the contract. 565 P.2d at 1076-77. The plaintiff then covered the balance of its contract with the third-party, and filed suit against the defendant. 565 P.2d at 1076-77. The trial court did not allow the plaintiff to recover the value of the remaining 801 bushels since the plaintiff did not cover this amount. 565 P.2d at 1079. The Oregon Supreme Court, relying on Comment 5 to U.C.C. § 2-713, rejected the district court's determination, stating: 20 the language emphasized in comment 5 ... makes it clear that the drafters of the code contemplated situations in which buyers would only partially cover. This is precisely what occurred here. The plaintiff covered only enough to meet its contract obligation to Dreyfus. It would appear, therefore, that plaintiff would have been entitled to the actual cost of cover, if shown to be reasonable, plus damages measured under ORS 72.7130 as to the remaining 801 bushels.... The fact that plaintiff did not cover the entire amount does not bar recovery under ORS 72.7130. 565 P.2d at 1080. 7 21 As the Oregon Supreme Court concluded in Limmeroth, we believe Comment 5 to § 2-713 of the Uniform Commercial Code indicates a buyer who has partially covered may also recover damages for economic loss pursuant to Utah Stat. Ann. § 70A-2-713 to the extent he has not covered. Similar to the plaintiff in Limmeroth, Savage Industries was committed to perform under a contract with a third-party when American Pulverizer repudiated its contract with Savage Industries. In order to fulfill its obligations to the Sunnyside Facility, Savage Industries purchased and installed the Canica System. However, like the plaintiffs in Mann and Limmeroth, Savage Industries only effected a partial cover. The Canica crusher did not contain a closed loop configuration, which was part of the goods Savage Industries was entitled to under its contract with American Pulverizer. 22 As the plaintiff in Mann was permitted to recover damages for the lumber handling system and the plaintiff in Limmeroth was entitled to recover damages for the 81 bushels of wheat it did not cover, Savage Industries should be permitted to recover the economic value of the CV-111 conveyor. Such recovery is necessary to comply with Utah Code Ann. § 70A-106's purpose of putting the aggrieved party in as good a position as if the other party had fully performed. Moreover, if we were to overlook Comment 5's language and prohibit a party from recovering benefit of the bargain damages where it has only partially covered, we would create an additional hardship for an injured party who must cover to satisfy a third-party contract. In order to obtain full recovery, such a party would be forced to cover for the value of the entire contract regardless of its ability to pay for cover and regardless of the economic circumstances existing at the time of cover. We refuse to adopt such a strict interpretation of Utah Code Ann. §§ 70A-2-711-13, and we therefore conclude the trial court's determination that Savage Industries is entitled to the economic value of the CV-111 conveyor is proper and in accordance with Utah law.