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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. |
This article is licensed
under the GNU Free Documentation License. It uses material from the
Wikipedia article "Cover".
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