Legal Definitions - cover

In contract law, particularly concerning the sale of goods, cover refers to the action a buyer takes when a seller fails to deliver the promised goods. It involves the buyer purchasing substitute goods from another source in the open market to replace the items the original seller failed to provide.

This allows the buyer to mitigate their losses and fulfill their own needs or obligations. If the buyer incurs a higher cost for these replacement goods, they can generally seek to recover the difference between the cost of the substitute goods and the original contract price from the breaching seller.

Here are some examples illustrating the concept of cover:

• Example 1: Manufacturing Supplies

  Scenario: "Precision Parts Co." contracts with "Metal Fabricators Inc." for a specialized batch of aluminum components at a total price of $75,000, with a strict delivery deadline of June 15th. These components are critical for Precision Parts Co.'s next production run of industrial machinery. On June 10th, Metal Fabricators Inc. informs Precision Parts Co. that due to unforeseen production issues, they cannot deliver the components. To avoid a costly delay in its own manufacturing schedule, Precision Parts Co. immediately searches the market and finds a new supplier, "Alloy Solutions," who can provide identical components for $90,000, which Precision Parts Co. purchases.

  Explanation: Precision Parts Co.'s action of buying the replacement aluminum components from Alloy Solutions after Metal Fabricators Inc. breached the contract is an act of cover. Precision Parts Co. can then seek to recover the $15,000 difference ($90,000 - $75,000) from Metal Fabricators Inc. as damages.

• Example 2: Retail Inventory

  Scenario: "Green Thumb Nursery" orders 1,000 rare ornamental plants from "Exotic Flora Growers" for $10,000, expecting delivery by April 1st, just before their busy spring season. Exotic Flora Growers fails to deliver the plants by the agreed date, citing a crop failure. To ensure they have the desired inventory for their customers and avoid losing sales during their peak season, Green Thumb Nursery quickly finds another wholesaler, "Botanical Wonders," selling similar rare plants for $12,500 and purchases them.

  Explanation: Green Thumb Nursery's purchase of the 1,000 plants from Botanical Wonders to replace the order that Exotic Flora Growers failed to deliver is an instance of cover. Green Thumb Nursery would then be entitled to claim the $2,500 difference ($12,500 - $10,000) from Exotic Flora Growers.

• Example 3: Technology Components

  Scenario: "NextGen Robotics" enters into a contract with "SensorTech Corp." for 500 advanced proximity sensors at $200 each, totaling $100,000, which are essential for their new line of autonomous drones. SensorTech Corp. unexpectedly informs NextGen Robotics that they can only deliver 200 sensors and will not be able to fulfill the remaining 300. To complete their drone production and meet their product launch deadline, NextGen Robotics quickly sources the remaining 300 sensors from "Global Sensor Solutions" at a higher price of $230 per sensor, paying $69,000 for these replacement units.

  Explanation: NextGen Robotics' action of buying the additional 300 sensors from Global Sensor Solutions to complete their order after SensorTech Corp. breached the contract for those units is an example of cover. NextGen Robotics can pursue SensorTech Corp. for the additional cost incurred for the 300 sensors, which is $9,000 (300 sensors * ($230 - $200)).