Cover
is a term used in the law of contracts to describe a
remedy available to a merchant buyer who has received an
anticipatory repudiation of a contract for the receipt of
goods. Under the Uniform Commercial Code, the buyer is
permitted (but not required) to find another source of
the same type of goods. The buyer may then file a lawsuit
against the breaching seller to recover the difference,
if any, between the cost of the goods offered and the
cost of the goods actually purchased.
The possibility of cover will prevent a party from being
able to sue for specific performance, which is an
equitable remedy that requires the buyer have no adequate
remedy at law. If the buyer is able to buy elsewhere and
sue for the difference, that provides an adequate remedy.
This prohibition does not apply, however, to the sale of
unique goods such as original works of art, collectibles,
and real estate.
Judge Richard Posner has suggested that that the
availability of cover allows for efficient breach - that
is, that it encourages the most efficient allocation of
resources by allowing a seller to breach a contract to
sell goods to one buyer when another, more lucrative
opportunity comes along. The seller may thus be able to
realize a sufficiently increased profit to make more
money even after repaying the difference to the original
buyer. Therefore, no value is lost in the transaction
because the original buyer is in the same position he
would have been but for the breach, and the seller is in
a better position. |
