Also known as: good in substitution · substitute goods · cover goods
Written by attorneys — see sources below.
A purchase or contract to purchase goods made by a buyer in good faith and without unreasonable delay after a seller's breach to replace those due under the contract. The buyer may recover the difference between the cost of the substitute goods and the contract price together with incidental or consequential damages less expenses saved.
Gulfstream Aviation contracted to buy specialized aircraft parts from Griffin Industries at a fixed price. Griffin Industries repudiated the contract. Gulfstream Aviation promptly located another supplier and purchased identical parts at a higher market price within a week. Gulfstream Aviation may recover the price differential plus any incidental costs from Griffin Industries because the substitute purchase satisfies the requirements for cover.
North Drive contracted with West Fleet for brake assemblies at a fixed price. West Fleet cancelled after its warehouse flooded. North Drive contacted two distributors and bought substitute assemblies at a higher price within ten days to keep repair operations running. North Drive can recover the difference between the cover price and contract price because the purchases were made in good faith and without unreasonable delay.
Allied Canners & Packers, Inc., a San Francisco-based exporter of dry, canned, and frozen food products, entered into two contracts with Victor Packing Company, a Fresno packer of fruits, on September 3 and September 8, 1976. Each contract called for Victor to sell and deliver five containers holding 37,500 pounds of select Natural Thompson Seedless raisins FOB at the Port of Oakland during October 1976 at a price of 29.75 cents per pound less a 4 percent discount. Allied had contracted to resell the raisins to Japanese firms and stood to gain $4,462.50 on the overall transaction. The Raisin Administrative Committee governed the sale of reserve raisins. Victor, as a member, could purchase reserve raisins at 22 cents per pound until the morning of September 10, 1976. Heavy rains on September 9 damaged the drying crop, prompting the Committee to withdraw its offer after 8:30 a.m. on September 10. Victor had not applied in time, and subsequent efforts by both parties to secure 375,000 pounds of raisins proved unsuccessful. On September 15, 1976, Victor informed Allied that it would not deliver the raisins under the contracts. Allied made no purchases to cover on the open market, where prices reached 80 to 87 cents per pound by October. One buyer rescinded its contract for three containers, but Shoei Foods demanded the remaining seven containers; however, a force majeure provision protected Allied, and no lawsuit followed despite the passage of time until judgment in July 1981. Following a court trial, the trial court determined that Allied acted as a broker rather than a buyer and awarded damages of only $4,462.50. Allied appealed the judgment to the California Court of Appeal.
View caseThe buyer must act in good faith and without unreasonable delay when making a reasonable purchase of substitute goods. Prompt action after the breach and selection of commercially comparable goods satisfy these standards and permit recovery of the price differential.
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No. A buyer who does not cover may still pursue other remedies such as market-price damages or consequential damages. The cover mechanism is optional and does not limit available relief.
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The buyer recovers the difference between the cost of cover and the contract price together with incidental or consequential damages less any expenses saved because of the breach. This measure places the buyer in the position it would have occupied had the seller performed.
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…1974, the price of steel steadily rose; as a consequence, Sharon's late deliveries had the effect of increasing the price of the goods. Although Sharon's shipments to the plaintiffs were consistently delinquent throughout 1974, the plaintiffs continued to accept the late shipments and to place new orders with Sharon. The…