The Basic Awards Under UCC §2-712, §2-713, §2-714 - Recall that the basic awards to the buyer in UCC §2-712, §2-713, §2-714 are as follows:
§2-712:Cover price (CP) minus contract price (KP) – This applies when the buyer rejects a non-conforming delivery and covers.
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§2-713:Market price (MP) minus contract price (KP) – This applies when the buyer rejects a non-conforming delivery and fails to cover.
§2-714:Value as warranted (AW) minus value as delivered (AD) – This applies when the buyer accepts a non-conforming delivery and gives seasonable notice.
These sections also award incidental and consequential damages and subtract expenses saved as a result of the breach.
This post addresses incidental damages only.
Incidental Damages As Defined in §2-715(1) - The UCC defines incidental damages in §2-715(1).
The definition is simply a list of examples: reasonable expenses incurred after a breach in regard to:
· Inspecting the goods;
· Transporting them and caring for them while the goods are in the buyer’s custody; and
· Reasonable expenses incurred when covering.
The Official Comment to §2-715 notes that this list is not intended to be exhaustive, and, in fact, §2-715(1) ends by noting that incidental damages include “any other reasonable expense incident to the delay or other breach.”
The use of “incident” in defining incidental damages is less than helpful, but what the UCC has in mind are those expenses a buyer incurs in reasonably dealing with rejected goods.
Awarding Incidental Damages Under UCC §2-712, §2-713, §2-714 - The formula for awarding incidental damages to the basic awards is as follows:
§2-712: (CP – KP) + ID
§2-713: (MP – KP) + ID
§2-714: (AW – AD) + ID
Incidental Damages Must Be “Reasonable” - Under §2-712, assume that a buyer incurred $200 of shipping expenses while “covering” the delivery of non-conforming goods valued at $2,000.
Those expenses are not large in relation to the value of the non-conforming goods and would likely be recoverable as incidental damages.
Assume, in the alternative, that the buyer also hires, at a cost of $40,000, a security company to safeguard the goods. That $40,000 expense would likely not be considered reasonable in relation to the $2,000 value of the goods and thus would likely not be recoverable as incidental expenses.
The Law School Experience - These and related topics are covered in our tutorials on Contract Remedies.
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